S&P 500 Would Need To Surge By 25% To Match Dot-Com Bubble Level Of ‘Irrational Exuberance,’ Say Analysts: ‘No Doubt Concentration Is One Of The Biggest Risks’

The S&P 500 would have to soar by an additional 25% to replicate the “irrational exuberance” that fueled the 90s tech bubble, according to Societe Generale analysts.

What Happened: Analysts Manish Kabra and Alain Bokobza at Societe Generale wrote in a note on Wednesday, reported by Business Insider, “Applying the peak of the [technology-media-telecoms] bubble maths to the Nasdaq-100, the S&P 500 would have to reach 6,250 to price in the same level of irrational exuberance.”

At the peak of the dot-com bubble, the tech sector was trading at twice its profit share of the S&P 500, and the benchmark index had a price-to-earnings ratio of 25x. Currently, the Nasdaq-100 is trading at 1.25 times its share of profits (40% of S&P 500’s earnings per share), and the S&P 500 price-to-earnings ratio is 20x.

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Despite the S&P 500’s concentration in stocks like Microsoft, Apple, and Nvidia, analysts believe the current rally is driven by “rational optimism” rather than irrational exuberance.

“There is no doubt concentration is one of the biggest risks,” Kabra wrote.

“The index weights of the top 10 U.S. stocks are even higher today than they were in the [dot-com]-bubble.”

Why It Matters: The current market conditions have been compared to the dot-com bubble by various analysts. In January, JPMorgan Chase & Co. analysts warned that the market was showing concerning signs of concentration, similar to the dot-com bubble.

However, some experts, like Gene Munster, have dismissed the idea of an imminent bubble burst, suggesting that the current rally is the start of a 3-5 year tech run.

Meanwhile, Capital Economics’ John Higgins has forecasted that the stock market bubble will continue to inflate until the end of 2025, with the S&P 500 potentially reaching 6,500 points by then.

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