In recent years, the stock market has experienced impressive gains, spurred by the excitement surrounding artificial intelligence and technology trends, leading many to draw parallels with the dot-com bubble of the late 1990s. However, experts argue that while similarities are evident, there are important distinctions, particularly when looking at current market conditions compared to those of the 1990s.
Nicholas Colas, co-founder of DataTrek Research, pointed out that the S&P 500’s back-to-back gains of over 20% in both 2023 and 2024 closely resemble the strong market returns of the late 1990s. The S&P 500 achieved its longest streak of consecutive positive returns between 1991 and 1999, culminating in nine years of growth. Colas highlighted that, despite the geopolitical and market events of 2018 to 2022, the overall returns of the S&P 500 during the 2023-2024 period bear striking similarities to those seen in the early and mid-1990s, where the index gained 55.2% compared to the 51.1% return of the earlier period.
Looking further back, the two-year period from 1995 saw a substantial 68% return, which stands in contrast to the 58.5% gain recorded from 2023 through 2024, a striking reflection of the similarities people are drawing between the two eras.
A noticeable common thread between today and the late ’90s is the overwhelming presence of technology stocks. Colas noted that technology now accounts for 32.4% of the S&P 500, with major players like Amazon, Tesla, Meta Platforms, and Alphabet driving this surge. These stocks, spread across the consumer discretionary and communication services sectors, have significantly reshaped the market’s landscape. “The 2020s market is the late 1990s on steroids,” Colas remarked, suggesting that technology’s current weight in the S&P 500 is on track to grow even further.
Despite the high stock valuations driven by excitement over AI, Colas mentioned that the technological advances in computing power might justify the current optimism to a greater extent than the dot-com mania of the ’90s. The impact of these advances could set a more solid foundation for market enthusiasm.
One crucial difference, however, is market volatility. In contrast to the high volatility seen in the late ’90s—marked by frequent spikes in the CBOE Volatility Index (VIX) above 20—today’s market has been relatively calm. In 2023 and 2024, the VIX averaged a much lower daily closing of 16.2, indicating a more stable market environment. Currently, the VIX is hovering around 17.7, which stands in stark contrast to the more turbulent conditions of the dot-com era.
Colas also noted that while the market environment of 1999 seemed prosperous, the aftermath of the 2000-2002 period left many investors with losses. The current low volatility is encouraging, as long as the VIX remains subdued, with Colas expressing a continued bullish outlook on stocks. However, he emphasized that only when the VIX begins to rise significantly will comparisons to the late 1990s become more relevant.
Looking ahead, some experts believe the bull market may just be getting started. Jim Paulsen, author of the Paulsen Perspectives newsletter, pointed out that the current bull market began on October 12, 2022. Historically, the third year of a bull market is more volatile and typically shows weaker performance compared to the first two. However, Paulsen noted that if the market survives this period, there is substantial reason for optimism, as bull markets that extend beyond their third year tend to last several more years.
“The good news is, if the bull market survives this coming year, it is likely to last for several more years,” Paulsen stated. He added that the average length of past bull markets is about 5.05 years, with the median lasting 4.57 years. Once a bull market surpasses its third year, however, the average duration increases to 7.25 years, and the median rises to 6.17 years.
In conclusion, if volatility indeed spikes but the rally persists, the comparisons between today’s market and the 1990s will only grow stronger. Whether this marks the beginning of a long-lasting bull market or a prelude to a more volatile period remains to be seen.
Related Topics:
How Technology Can Help Us Reach Global Financial Equity
