A Look Back at 1999

It is said that history never repeats itself but it sure seems to rhyme. I’m not sure who said this but it does seem to be applicable to market behavior in that nothing tends to happen exactly the same as the past but there certainly tend to be some similarities. I have no idea whether comparing today’s environment to the tech-bubble of 1999 is applicable but many are doing it and I have done some of the same.

The 2020 market through early September, not to suggest it is over, was fueled by a handful of leading technology stocks. This fact is certainly similar to the late ‘90s tech bubble.

The accompanying table shows TODAY’s 10 largest technology stocks, their performance during the past decade, year-to-date, and so far this month of September. As you can see, the average of these 10 stocks has gained nearly 1,700% during the last 10 years (Alphabet and Facebook have not been public for the full 10 years) while the S&P 500 is up 270%. The year-to-date comparison is similar with these stocks up +36% compared the S&P 500’s gain of +5%. The market decline this month has been one where these 10 top tech stocks have fallen -8.3% or nearly double the S&P 500’s loss.

^* 10-year % Change is from its IPO price (shorter than 10 years)

Source: www.YCharts.com

The following table shows the top 10 tech stocks at the end of 1999. These stock were very much the darlings of Wall Street having produced outsized market gains leading up to the end of 1999 and appeared unstoppable. That was not the case though as all of these stocks suffered massive losses during the next few years falling an average of -80% from the market’s peak in March 2000 to the low in 2002. Furthermore, only two of these 10 stocks recovered and produced gains while many others didn’t survive.

^* 10-year % Change is from its IPO price (shorter than 10 years)

Source: www.YCharts.com, Standard & Poor’s, CRSP, Patton analysis

Again, I’m unsure if today’s market environment should be considered to the late ‘90s but I do believe investors need to be aware that stocks do not go higher forever. Furthermore, even though they are great companies, their stocks prices can get far ahead of reality and suffer mightily even if the company itself continues to thrive.

This Week’s Performance Highlights

Source: www.YCharts.com

U.S. stocks were broadly and meaningfully lower for the week as the shares of leading technology companies and other strong performers in 2020 faced rather aggressive selling pressure.

Economic Indicators

Initial jobless claims disappointed this week with 884,000 new claims. Economists had forecast a drop to 840,000 but instead we saw the fourth consecutive week of deterioration. This is dimming hopes that the employment market will continue to recover at a steady pace as had been widely expected.

Continuing jobless claims, the total number of people receiving benefits, rose by more than 93,000 to 13.4 million. Although when including federal programs providing special pandemic relief, claims rose by 380,000 to 29.6 million. As the accompanying graph shows, although claims at the state level are off the pandemic high of 25 million, there are still more than 7 times the number of people receiving benefits today as compared to early in the year.

Source: www.YCharts.com

Consumer prices climbed by +0.4% in the most recent month while producer prices where higher by +0.3% according to the Consumer Price Index (CPI) and Producer Price Index (PPI). Both numbers were 0.1% higher than economists had expected but were lower than the month before.

On the consumer side, the price of used cars jumped by +5.4% making it the biggest increase in more than a half century. The gain in producer prices were led by price gain for machinery, equipment, parts, and supplies. Increasing prices are expected to moderate with the outlook for inflation remaining low.

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