Is U.S. Technology Sector in a Bubble?

Abstract

The paper is examines the issue if the U.S. technology sector is in the bubble. Our analysis is based on the study of relative indicators, especially on price-to-earnings ratio. We studied the last two historic bubbles and analyzed the current state on the U.S. stock market. We find that U.S. stock market is heavily overvalued, which can be argued with high values of the relative indicators com- pared to the historical average. Some of them indicate that market was valued higher only during the Great Depression in 1929 and during the technological bubble in 2000. Remarkably high values are the result of low interest rates and quantitative easing. The current expansive monetary policy is encouraging risky businesses and increasing margin debt. With potential abatement of tax rates and other measures of expansive fiscal politics, stock markets could reach even higher values.