Partying like it's 1999? Not even close.
By Paul Price
Thursday, Aug. 11, 2016, saw all three major indices close at new record highs. That hadn’t happened since Dec. 31, 1999, just a few months before the painful end of the tech/internet mania.
The broad market, led by the NASDAQ, surged ahead for a few more months before beginning an epic retreat. The World Trade Center attacks of 2001 led to a few days’ trading halt followed by a short-term bottom. Patriotic sentiment then ignited a solid recovery, through early in 2002. That preceded one of the most grinding and painful six-month periods in modern times.
The final floor was put in during the first week of October, 2002, laying the foundation for a multi-year run which lasted well into 2007.
Were last week’s new highs a warning to get out, before a repeat of the 2000 to 2002 collapse?
Let’s go to the data before deciding. The DJIA and Standard & Poors 500 blue-chip indices, have had decent moves recently. As of Friday, Aug. 12, 2016, the DJIA was up 6.61% YTD but only 6.29% over the trailing 12- months. The S&P 500 was a shade better this year, at plus 6.85%, but was up only 4.85% for 52-weeks.
Unlike 1999, the tech-heavy NASDAQ Composite, has been the weakest market segment, both YTD and over a full year. The Fed’s ZIRP (zero interest rate policy) may have contributed to that as pension funds and individudals sought out more conservative, dividend-paying stocks rather than high-flying tech names with small or non-existent cash payouts.
Comparing the Nasdaq COMP’s last 150 trading days to the same time frame leading up to Dec. 31, 1999, really illustrates the shocking tale. During tech market mania the NASDAQ surged by 66% versus just 4.4% in the 150 sessions through last Thursday.
