Welcome to the Stay Welfy podcast. I'm your host, Taylor Schulte, and today I'm answering a very good

listener question from Nancy Kay in Minnesota, which is, are we in a stock market bubble? And to answer

Nancy's great question, let's just first quickly define what a bubble is.

And the definition is certainly subjective. Everyone kind of has their own opinion here, but in general,

the term bubble is used when referencing periods of time, when stocks or other asset classes,

real estate included, have gone up so high in value that

the chances of a catastrophic drop are looking more and more promising.

The most recent example that you might remember, it would be the dot-com bubble in the late

90s when the NASDAQ rose 400% in five years, which was quickly followed by the bubble bursting and companies like Cisco and Oracle and others losing more than 80% of their value.

Now, what a lot of people forget is that it took about 15 years for the NASDAQ to get back to its dot-com peak, which it finally did

on April 23rd in 2015. Another way to define bubbles or other asset classes are if they're

overvalued or undervalued, which can be measured a number of different ways with the most commonly

referenced metric being the price to earnings ratio or PE ratio for short.

For those that use this metric, a high PE ratio indicates that a stock's price or an index's

price like the S&P 500 is expensive and overvalued.

A low PE ratio would be just the opposite.

So just sticking with the PE ratio here for simplicity stake, the PE ratio for the SMP 500

during the dot-com bubble was just over 46.

And right now, currently, the PE ratio for the S&P 500 is hovering around 34 now for reference the average PE ratio for the S&P 500 since the

1870s is about 16 and for the last few years here it's kind of sat around in the low 20s.

So going back to Nancy's question, you all might be concluding that simply just based off

of the current PE ratio, which again, I'm just using for simplicity's sake, don't send

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