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The Record Stock Market Rests on Some Big One-Offs
It's six months, give or take, since AI excitement drove stock valuations above their 2020 bubble high to reach the highest since 2000, the peak of the dot-com bubble.Something odd has happened since: Valuations, measured as the price-to-earnings or PE ratio, have plunged, while stocks rose to a record high this week.This isn't just unusual. It is unprecedented in data back to 1985. Valuations have never fallen so much over six months without stocks falling too.It helps to understand the basic mechanics of the PE ratio. The most useful version, the forward PE, measures a company's stock price against how much Wall Street analysts on average expect the company to earn in profit over the next year. At its October peak, the S&P 500 PE ratio was above 23.A related way to measure PE is to adjust it for how fast a company's profits are expected to grow. Do this for the eight biggest tech and AI stocks and they were cheaper on the so-called PE-to-growth ratio early this past week than they'v
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