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The first major difference between the late 1990s and today’s stock market (that means the S&P 500 and Nasdaq Composite) is sentiment.
The prevailing sentiment today is almost indifferent compared to the madness of the late 1990s. in In September 1999, using a monthly chart of the Nasdaq Composite Index, the company closed at 2,750 on September 23, 1999, and then rose a cumulative 86% by March 23, 2000, hitting 5,132.52 in just 6 short months. (Think about it, this was five years after January 1, 1995.)
The S&P 500 had an annualized return of 28.5% between 1995-1999, and a cumulative return of 251%, while the annualized return of the S&P 500 between January 1, 2020 and May 31, 2024 is 13.56% and a cumulative return of 70%. (returns data sources from YCharts)
If you don’t live by it The late 1990s and managing money for clients, it’s really hard to understand what that was like.
Today, here are some similarities:
Weaker amplitude
This is page 3 of this weekend’s detailed report. The “weak breadth” dilemma lasted for nearly five full years in the late 1990s, and was accompanied by a similar tight lead within the S&P 500 at that time as well.
The interesting aspect regarding breadth is that – if you look at the right side table of the page above. 3 From the Detailed Report – “Average” forward returns are respectable, especially over the next year. (Be sure to read the review too.)
This blog follows the expansion closely, and it has become weaker in the past few months.
Narrow market leadership
This chart — from Fidelity’s Jurien Timmer from late 2023 — illustrates the tight market leadership that the S&P 500 has become famous for (again), just as it was in the late 1990s. Readers can see the Nifty 50 bear market from 1973-74, then the “tech bubble” of the late 1990s, then late 2021 and now today.
When I just wrote this, what struck me was that the time interval between the Nifty 50 bear market of 1973-74 and the S&P 500 and Nasdaq peak in March 2000 was about 25 years. In March 2025, there will be 25 years between the top of technology and growth stocks and the market today. The 2008 bear market – which was also a 50% correction but driven by the housing sector and the financial system – may mitigate this situation somewhat.
Since the S&P 500 bottomed in March 2009 at 667, it has been about 15 years since we’ve seen a similar correction.
Federal Reserve
Alan Greenspan was running the Fed in the late 1990s and was raising interest rates from June 1999 to May 2000, and many believed this was the main reason the growth stock bubble collapsed, but – like any dramatic event – there were other reasons as well. Although the Fed has stopped raising the federal funds rate as of July 23, it is clear that monetary policy tightening has led to a sharp correction in the S&P 500 (yield -18%) and the Nasdaq Composite (yield -32%). In the 2022 calendar.
The Fed is still very important when thinking about overall rebalancing in terms of market leadership.
Finally, underperforming asset classes
The performance of the equally weighted Russell 2000, Standard & Poor’s 500 and International Returns indexes far underperformed the S&P 500 and Nasdaq in the late 1990s. (Technically, the RSP didn’t go public until May of 2003, eliminating a significant period of outperformance for equal-weighted ETFs, as the Nasdaq and the top 10 names in the S&P 500 began to rapidly unravel a month later.) March 2000.)
Using the Russell 2000 as an example, let’s compare the annual returns against the S&P 500 since January 1, 2000:
From January 1, 1995 to December 31, 1999:
- S&P 500: +28.5%
- Russell 2000: +16.57%
January 1, 2000 to May 31, 2024:
- S&P 500: +10.7%
- Russell 2000: +8.9%
January 1, 2010 to May 31, 2024:
- S&P 500: +13.55%
- Russell 2000: +10.13%
January 1, 2015 to May 31, 2024:
- S&P 500: +12.56%
- Russell 2000: +7.37%
January 1, 2020 to May 31, 2024:
- S&P 500: +13.56%
- Russell 2000: +6.41%
January 1, 2023 to May 31, 2024:
- S&P 500: +27.11%
- Russell 2000: +13.75%
It’s the ratio that interests me. Studying the numbers, it was surprising to see that the Russell 2000 had half the return of the S&P 500 in the late 1990s. This 16.5% return still represents a decent return for the last half of the 1990s.
Readers can see as we move through the last decade 2010 to 2019 and now into this decade, the return gap between the Russell 2000 and S&P 500 is definitely widening and reaching the same ratio again.
Summary/conclusion
One of the main considerations when writing “perspective” articles like this is that they force me to remember major market events, what may have precipitated them, and how similar or different we are today compared to history.
Originally I thought that – given the two 50% bear markets we experienced between 2000 and 2009 – investors were unlikely to see another 50% bear market very soon. (The Nasdaq market declined from 2000 to 2002 by 80%).
The total return of the S&P 500 as of Friday, June 7, 2024 was 12.7%, and the 60%/40% balanced portfolio returned 7.15%. Since it’s an election year, and traditional stock market election year cycle returns are usually pretty good (and S&P 500 gains hold up well), don’t overthink it too much.
What made me optimistic was the fact that the S&P 500 did not surpass its March 2000 highs of 1,550 to 1,575 until May 2013, and the Nasdaq 100 and Nasdaq Composite also did not surpass its March 2000 highs until 2017.
However, the equally weighted Russell 2000 (IWM), S&P 500 (RSP) and international positions will likely see their weights in client accounts rise as we move forward.
A lot depends on the presidential election as well.
It makes sense to be more cautious about “expected future returns.”
None of this is advice or recommendation, just an opinion. Past performance is no guarantee of future results. All revenue data above are sourced from YCharts, while all S&P 500 EPS and revenue data are sourced from LSEG. Investing can involve losing money even for short periods of time. Readers should gauge their comfort with portfolio and stock market volatility and adjust their calculations accordingly.
Thanks for reading.
Original post
Editor’s note: The summary points for this article were selected by Seeking Alpha editors.
