James Mackintosh makes the case in the Wall Street Journal that today’s market looks awfully similar to that of 1999-2000. He writes:
Is the dot-com bust happening again right under our noses? It might seem an odd claim, but there is a remarkable resemblance between the speculative boom-to-bust of late 1999 and the first half of 2000 and what’s happened over the past nine months in the fashionable areas of clean energy, electric cars, cannabis stocks and SPACs.
If the parallel continues it bodes ill for investors who joined the excess late. The trendy stocks—led by Tesla—are already down a quarter to a third from this year’s highs. But there are reasons to hope that, unlike at the turn of the century, the malaise won’t spread to the rest of the market.
The similarities are in both performance and investor behavior. The late-1999 fear of missing out on internet stocks inflated the Nasdaq Composite 83% from the end of September to its March 2000 top. From September last year to this year’s highs, Invesco’s solar exchange-traded fund jumped 88%, Blackrock’s global clean energy ETF jumped 81%, and Ark’s innovation ETF 70%.
Back then the leading large bubble stock Cisco rose 133%, while today’s leading bubble stock—Tesla—was up 110% from September to peak. Pure dot-com areas roughly tripled, just as cannabis funds have this time.
Even the time of year is similar, with the fashionable sectors peaking in February and March this year, while the dot-com high was reached on March 10, 2000. After the bubble burst, the performance by mid-June—now—followed the same course, with losses of a quarter to a third from this year’s frothy areas, and a loss of a quarter in the Nasdaq in 2000 ( Cisco held up a little longer).
Trading behavior was similar, too. The end of 1999 was when fear of missing out drove dot-com skeptics—including institutional investors and holdout hedge funds—to buy anyway, while day traders drove extraordinary day-one gains for internet IPOs.
The last quarter of 2020 marked the moment Tesla was finally taken seriously, after being admitted to the S&P 500; solar and clean energy became must-haves no matter the price for many big institutions under pressure to show their environmental credentials; and SPACs took the place of the IPO madness of 2000 as a way to funnel money to lossmaking startups.
Looking back, what I don’t recall about the dot-com bubble is just how boring the S&P 500 was over the final months of Nasdaq boom and bust. The S&P was down just 4% from its March high by mid-June in 2000. That isn’t so different to today, when the S&P has continued to make new highs despite the crash of fashionable stocks.
Read more here.