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The Nasdaq Composite (COMP.IND) is within 220 points of its all-time high print of 16,212, last seen in late November ’21.
The Comp is the last major index (other than the Russell 2000) to have yet to trade above its late 2021 high print, although it looks poised to do it shortly.
The Russell 2000 (using the IWM) peaked at 244 in early November ’21. The Russell 2000 is still well below its all-time high.
The only reason for the post this morning, as Super Bowl 58 is awaited, is that – from a sentiment perspective – today’s stock market seems nothing like the late 1990s. Having managed money for almost 30 years now, already the mainstream financial media is repeating their “modus operandi” that was heard ad nauseam in the late 1990s, i.e., featured guest after featured guest noting how the market performance is concentrated in the top 10 mega-caps and how the rest of the S&P 500 is underperforming and represents “value” but what the Russell 2000 and the financial sector and other sectors beside tech represent is “uncorrelated” return, and not always value per se.
There are several similarities but also a few important differences between today’s S&P 500 at an all-time high and the late 1990s, and the big one (to me) is sentiment and the lack of any real frenzied trading atmosphere, like we saw in the 1990s.
The other hallmark to the late 1990s was the very short, sharp and frenzied market corrections seen in the midst of that 1995-1999, 28% annual return for the S&P 500.
The first correction started in late July ’97 around the devaluation of the Thai baht and Malaysian ringgit. At first, it seemed the devaluations were insignificant and relatively unimportant currency events, but what it triggered was a series of rolling devaluations throughout Southeast Asia (at one point it was thought Hong Kong was going to devalue their currency, which, I thought, was puzzling given that the HK dollar is (or was) tied to the US dollar), and all of this ultimately triggered a sharp recession in the Southeast Asian “Tiger” economies, which sent the US stock market into turmoil in late 1997. Many thought the US economy might see a spillover recession due to what was happening in Southeast Asia. The price of crude oil in early ’98 fell to about $8 per barrel as economies collapsed, or rapidly slowed down, all throughout Southeast Asia in late 1997-early 1998.
The S&P 500 bottomed in early January ’98, rallied for 7 full months, until late July 1998, and then the Russian debt default and the Long-Term Capital Management Crisis hit the fan and resulted in what was a 30-35% correction in the Nasdaq between late July ’98 and early October ’98, when Alan Greenspan started cutting the Fed funds rate.
It was a weird time in August-September ’98: anyone involved in trading or managing money was watching the nearly straight drop in the S&P 500 and Nasdaq on a daily basis in those two months, and after 5 or 6 weeks was thinking, “What the bleep is happening?” and then David Faber of CNBC broke the story about John Meriwether and Long-Term Capital Management, and the Russian Debt Crisis and LTCM culminated in an ugly 8 weeks for US capital markets, all of which had been happening under the surface, and outside of what was pretty good US economic data.
When the S&P 500 and the Nasdaq bottomed in early October ’98, and Fed Chair Alan Greenspan started reducing the Fed funds rate, it was a straight shot for both benchmarks, particularly the Nasdaq. To give readers some perspective on the correction, using Worden’s TC2000 technical analysis software, and the monthly chart of the Nasdaq Comp, the Nasdaq peaked at a little over 2,000 in late July ’98, and bottomed near 1,300 in October ’98. That’s a 35% correction in 8 weeks. (I’m amazed I lived through it.) From October ’98 through March 2000, where the Nasdaq Comp peaked at a little over 5,000, the Comp rose 285%.
Please forgive the history lesson, but I think it’s safe to say, from a sentiment perspective, we are nowhere near the market frenzy of the late 1990s.
Summary / conclusion: Predictions are easy, but being right consistently with your predictions is far harder, even though the mainstream financial media is filled with such prognostications on a daily, weekly and monthly basis.
The S&P 500 is up 19% since its bottom in early November ’23, but it had fallen 10% from its peak in late July ’23 to the lows in late October – early November ’23 when the 10-year Treasury yield hit 10%.
J.P. Morgan puts out a great table in the J.P. Morgan Guide to the Market that notes – since the early 1980s – on average – the S&P 500 has corrected 13-15% peak-to-trough during every calendar year.
Watch and see if the Nasdaq Composite makes an all-time high above 16,212 and if the Russell 2000 follows. Stock markets at all-time highs are not necessarily a reason to sell. Rebalance, yes, sell entirely, probably not.
Readers should gauge their own appetite for market volatility and adjust their portfolio, accordingly. Just because one person can live with a volatile portfolio doesn’t mean that’s appropriate for everybody. But the fact is, this market is relatively tame for anyone that lived through the 1990s.
None of this is advice or a recommendation. Past performance is no guarantee or suggestion of future results. Investing can involve loss of principal. Perspective and opinions can change quickly based on changes in capital markets.
Thanks for reading.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
