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A retrospective on the stock market in 2000

Author

Listed:
  • John B. Carlson
  • Eduard A. Pelz

Abstract

During late 1998 and much of 1999, the price earnings ratio (P/E) of the S&P 500 index reached unprecedented levels. This was especially evident for the largest 18 technology firms, whose market-weighted P/E exceeded 125 in March of last year. These valuations, which dominated the NASDAQ, proved unsustainable. This Commentary reviews factors that affect P/E ratios and concludes that investors' expectations for earnings growth were overly optimistic, especially for large-cap technology stocks, and that investors could have known this before the bubble burst.

Suggested Citation

  • John B. Carlson & Eduard A. Pelz, 2001. "A retrospective on the stock market in 2000," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jan.
    • Handle: RePEc:fip:fedcec:y:2001:i:jan15
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