The market is seemingly in can’t-lose mode.
When there’s good news, stocks spike. When there’s bad news, stocks go nowhere. Lots of people say this is all the doing of the Fed, and that it’s a bubble that will end in tears.
In a great, thorough post, Josh Brown destroys the comparisons between 2013 and 1999 in utterly convincing manner.
It’s a very thorough post which attacks this comparison in multiple ways.
The simplest debunking is on valuation. Right now, he notes, the S&P 500 is earning twice what is was in 1999. And the dividends are twice as big as well:
What kind of premium, pray tell, are we paying for double the earnings and twice the dividend yield versus 1999’s market? I’m so glad you asked – turns out we’re not paying any premium at all. We’re paying a discount. 50% off. The current S&P 500 trades for a PE of 14 versus 33 for 1999. So double the fundamentals for half the price.
And he destroys the idea that there’s speculation everywhere by reminding readers what the scene was really like in 1999, for those who have forgotten:
In 1999, the S&P 500 rose by 19.5% – a good gain but you should know that the gains were extremely concentrated, more than half of the companies in the S&P were actually negative on the year! The Nasdaq 100 was up an astounding 85% in 1999, a mania for the ages, but an extremely sector-specific one. This contrasts with today, where almost every sector is now participating in the advance in a rolling, rotating, sexually undulating manner not unlike the midriff of a belly dancer.
In 1999, the market was led by Qualcomm, which went up 2,619 per cent during the course of the year. There were twelve other Nasdaq tech stocks that gained more than 1,000 per cent that year and seven more that were up over 900%. These companies were hardly earning any money and many of them had been founded just hours before coming public. There was more than $50 billion in IPO issuance that year, with profit-challenged tech stocks representing about half of that, more than 200 of them went public in 12 months and on average they debuted with an 80% gain.
And unlike in 1999, nobody really cares about this market:
Stock market-focused websites are having trouble finding a reason to continue existing given the swindling population of hobbyist investors. There is a finite number of people who want alerts and stock picks (TheStreet.com estimates it is 3 million and I would take the under). It is an old audience with nostalgia for the 1982-2000 bull market and it is dying slowly but incessantly. It is not being replaced with new enthusiasts, Gen Xers are disillusioned, Gen Yers are bored with it and the Millennials are scared to death and think stocks are the devil.
And so he concludes:
This is nothing like 1999 other than the fact that stocks are going up. This doesn’t mean that they can’t go down, it simply means that being in the market now isn’t crazy or stupid or reckless. Being out of market, on the other hand, with a retirement somewhere far out on the horizon, is the height of recklessness, the opposite of conservative.