Look At This Factor When Predicting a NASDAQ Crash

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By Jacob Maslow

Nasdaq Headquarters - Times SquareThe NASDAQ composite is finally headed to another record high. Unlike the Dow Jones industrial average, which seems to be setting record highs almost every single month, the NASDAQ is clawing back to its historic 5,000-point record high after a fifteen-year decline. This is a momentous occasion. It is also a very scary occasion.

As you probably already know, right after the NASDAQ composite hit 5,000, it went downhill from there. In fact, it suffered a very steep drop in the year 2000. In fact, the NASDAQ’s freefall plunged the American economy into a recession. Thankfully, it was a short-lived recession. But people were still jobless. There were still a lot of layoffs. A lot of economic pain was felt throughout the broader economy.

It is no surprise, then, that a lot of market observers are quite nervous as the NASDAQ heats up and takes aim at that 5,000 mark. There is one factor that you need to keep in mind, however, to put things in perspective. I am not saying that looking at this factor should calm your nerves. However, it should provide a broad context as to when a potential correction will take place.

At this point in time, when the NASDAQ composite crossed the 5,000 mark, the price-per-earnings ratio of the S&P 500 was at 29. Currently, the S&P 500’s PE ratio is at 20.5. This indicates that there is still room to run for the rally. We haven’t hit the peak yet. This should offer some important guidance for people looking to play the market or investors looking to exit the market.

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