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Dynamic Financial Graph
Dynamic Financial Graph
(AUDINDesign/Getty Images/iStockphoto)

The real bubble is in fear, not stocks

Investors’ anxiety over potential asset bubbles is reaching fever pitch, but the conditions for a stock market crash – namely, excessive optimism and wildly stretched valuations – are simply not apparent. Problems exist as they always do, but the likelihood of a severe downdraft remains low.

The most common yardstick for stock market value is the price-to-earnings ratio and, on both sides of the border, it doesn’t even hint at bubbly conditions. The S&P/TSX Composite Index is trading at 17.5 times trailing earnings, while the S&P 500 goes for 17 times. These numbers are very close to their average levels of the past decade and a far cry from the 175 times that the Nasdaq reached at the peak of the dot-com bubble in March, 2000.