Thanks to spectacular innovations in high tech, we're entering a whole new era characterized by galloping growth. As a result, today's high stock prices reflect legitimate expectations that companies' future real earnings will be handsome. Take the stock boom preceding the crash of '29. Back then, investors and experts alike also believed in a halcyon new high-tech era, prompting a speculative surge in shares of companies like RCA and Westinghouse. Of course, not long after that, overly restrictive Fed policies helped trigger and prolong the Great Depression.
Investors are different.
A more credible argument against another crash may be that today's investors differ from those of the past and will be less likely to pull out of the market when it turns down. Although some analysts fear this money may prove skittish, in fact there was no panic selling by stock mutual fund investors from 1945 through 1995, according to the Investment Company Institute, the funds' trade group. Moreover, retirement planning figures so heavily among many investors that they are more inclined to take the long view. Still, mutual funds aren't taking chances that rationality has gone to people's heads. And the smart money won't know whether that's the case until we can look back on the bull market of the '90s with the perfect vision that comes from hindsight.