The dream of the ‘90s is alive in the stock market

Not to be the skunk at the garden party, but valuation metrics — admittedly pointless when it comes to timing downturns — suggest market sentiment is getting downright silly.

The wave of euphoria washing over the stock market since Donald Trump’s victory in the presidential election has pushed key valuation metrics back to levels that last durably prevailed during the tail-end of the 1990s tech stock boom.

Post-election bump in valuations …

For a market that was already historically expensive

What does it mean?

Well, in literal terms it simply means stock prices are going up faster than expectations for earnings among the Wall Street analysts paid to forecast how companies will do in the coming year.

And from a more thirty-thousand-foot perspective, it shows that what’s driving the market is right now is clearly sentiment, mood, vibes, if you will, rather than the hard-headed logic of profits and losses. In theory, that makes the market vulnerable to pullbacks should that bullishness fade.

But valuation is a notoriously poor market timing tool. Stocks can stay overly expensive for a good long while, and make traders tons of money, before gravity reasserts itself as it usually does. Given the breadth and strength of the post election rally, that could take a while.