Market Commentary for Week Ended 02/21/2020
by Zach Marsh on Feb 21, 2020
What Goes Up Must Come Down
The market hit an icy patch late this week, exhibiting signs of acrophobia, or the fear of heights. And can you blame it? For context, on Wednesday the Nasdaq 100 made an all-time high of 9718, a full 28.7% higher than its levels in early October. Additionally, since the beginning of 2019 large cap growth stocks have outperformed large cap value stocks by over 24%. Since the late 2016 growth has outperformed value by over 40%. It may seem redundant to say we are in or entering some sort of growth/tech market bubble.
In the last year of the Tech Bubble, 1999, growth similarly outperformed value by 24% and in the last 4 years of the great tech rally growth outperformed value by 43.2%. It is hard not to draw comparisons between the two events when there are so many factors that are rhyming at the moment. And the similarities don’t stop there.
As the ‘90’s were drawing to a close many stocks tech stocks began to explode in value absent any real rational reason. Some of these stocks are long since defunct, like Pets.com or Toys.com, but many are still around, currently trading at a fraction of their 2000 levels. Juniper Networks once traded as high as $220 per share, now shares trade hands at $24/share. Cisco Systems traded as high as $80/share in 2000, now it can be had for $31/share.
We tend to overlook the Tech Collapse because the Financial Crisis is much fresher in our minds, but the 2 ½ year decline in stock values between 2000-2002 saw the Nasdaq 100 lose over 82% of its value! That makes the 60% decline in the S&P 500 in 2008 look somewhat modest by comparison. Each day that passes and I see stocks like Virgin Galactic Holdings and Tesla accumulate short-term gains eclipsing 100-200%, the more certain I am that we are in a period of irrational exuberance. Money is chasing around the next hot idea expecting to double or triple within a few weeks—that is an indicator that greed is in control while fear takes a backseat.
The little slip that the market showed between mid-day Thursday and into today should hardly qualify as a dip to buy when we see what real dips looked like in 2000. During three short weeks in 2000, from March 28-April 14, the Nasdaq fell over 30%. By comparison, this week’s 2%+ decline is just a deck chair on the Titanic. I can’t say whether the market will have a similar fall this time around, I just know that the hairs on the back of my neck are starting to rise.
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