The S&P 500 looks ominous right now, but…

Adjusting for cyclicality, the only time the S&P 500 has been more expensive than it is right now was in 2000. Right before the dotcom crash saw tech stocks plunge.

Source: Longtermtrends

Investors canât ignore this, but the issue is what they should do about it. And the answer isnât necessarily to start selling shares â or even to stop buying.

Stock market crash

Itâs almost impossible to ignore the similarities between the stock market in 2000 and today. The rise of artificial intelligence looks a lot like the emergence of the internet.

The casualties from the dotcom crash were huge. Some stocks fell more than 90% and investors who bought them at their peaks are still waiting for them to recover.

Outside of tech, there were shares that didnât just hold their value, but actually went up as investors looked for safety. These were stocks in sectors such as consumer defensives and utilities.

One strategy for investors looking for US stocks in the current market is therefore to look outside of AI for potential stability. But I think this is a risky approach that needs handling with care.

Going defensive

One of the stocks that fared well in the 2000 crash was Procter & Gamble (NYSE:PG). There are obvious reasons why â it has a strong position in a market where demand is steady.

The stock could hold up well if the market sells off again. But it’s underperformed the S&P 500 since 2000 and investors need to decide whether this is a true long-term opportunity.

Revenue growth over the last decade has been below 2% a year. And the stock trades at a price-to-earnings (P/E) ratio of 22, which isnât exactly cheap.

Thatâs not a criticism â growth opportunities just havenât been there in recent years. But investors need to think about the stock as a long-term investment not just short-term speculation.

Staying the course

When thinking about the crash of 2000, itâs easy to forget that the best move for a lot of investors was to stay put. Amazon (NASDAQ:AMZN) is a great illustration of this.

The companyâs share price fell over 95% when the dotcom bubble burst. But even investors who bought at the very top are up more than 14,000% on their investment just by holding on since then.

Thereâs a good reason for this. Amazon has taken a disciplined approach to value creation for shareholders. Its online platform has created a dominant position by focusing on the long term.

By aggressively focusing on customers, itâs established a scale that makes it almost impossible for other businesses to compete with. And the rest has followed from there over time.

What Iâm doing

I hold Amazon stock and the company is right in the thick of the AI spending. And there’s a real risk that this might not pay off if demand doesn’t materialise as expected.

In that situation, the share price might go down. But Iâm a buyer, rather than a seller, at todayâs levels â even with the S&P 500 at historically high valuation levels.

To my mind, the lesson of history is pretty clear. Investors who can identify businesses with long-term competitive advantages donât need to worry about short-term stock market crashes.

The post The S&P 500 looks ominous right now, but… appeared first on The Motley Fool UK.

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Stephen Wright has positions in Amazon and Procter & Gamble. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.