It’s 2019, But It Sure Feels a Lot Like 1998 for Stocks

(Bloomberg Opinion) — Should you like historic parallels, as I do, and notably about markets, then right here’s an intriguing one: What’s taking place now in 2019 appears to be like and feels so much prefer it did in 1998. The plain similarities are that, now as then, a U.S. president faces the specter of impeachment towards the backdrop of a robust financial system and surging inventory market. Even “Associates” continues to be in style at this time, simply because it was then. Nevertheless it’s the finer affinities inside these broader parallels which might be most fascinating, and in some methods instructive. Let’s have a look. 

For starters, when the U.S. Home of Representatives commenced impeachment proceedings towards Invoice Clinton in October 1998, the then U.S. financial enlargement was nearing the longest on file and would turn into the longest simply over a yr later. Donald Trump’s impeachment inquiry additionally coincides with an unusually lengthy enlargement, which overtook the Clinton-era growth final summer time.  

One other similarity is that the Federal Reserve minimize short-term rates of interest thrice this yr, because it did in 1998, to thrust back issues that the financial system is slowing. Each instances, the need of these cuts was removed from evident, because the Fed’s twin mandate of most employment and worth stability gave the impression to be safely in hand. The unemployment price averaged three.7% through the first 10 months of this yr, in contrast with four.5% over the identical time in 1998. And core PCE, the Fed’s most popular inflation gauge, has averaged 1.6% up to now this yr, in contrast with 1.three% in 1998.  

Then there’s the fairness market. The freakishly resilient financial system has been overshadowed by a inventory market propelled to all-time highs by buyers’ renewed obsession with expertise. In 1998, each conceivable enterprise — from pet merchandise to groceries and toy shops — put up a web site and known as itself a tech firm. Sound acquainted? Every little thing is expertise once more, together with retailers, workplace buildings, media corporations, automobile makers and, sure, even the drivers.

Tech lovers are again on the chase. The NYSE FANG+ Index is to techies at this time what the Nasdaq 100 Index was within the late 1990s, housing investor darlings reminiscent of Tesla Inc., Netflix Inc., Amazon.com Inc., Fb Inc. and Google dad or mum Alphabet Inc. It has returned a blistering 23.2% a yr from October 2014 by Friday, together with dividends, the longest interval for which numbers can be found. That’s 11.eight proportion factors a yr higher than the S&P 500 Index over the identical interval, practically the identical margin by which the Nasdaq 100 outpaced the S&P 500 over the identical time by November 1998.  

And as soon as once more, it’s been a depressing interval for buyers who declined to ditch their portfolios and chase tech. The FANG index has outpaced a balanced 60/40 portfolio of world shares and U.S. bonds — as represented by the MSCI All Nation World Index and Bloomberg Barclays U.S. Combination Bond Index — by a crushing 17 proportion factors a yr since October 2014, a mirrored image of low rates of interest and sluggish overseas inventory markets. Right here, too, that’s practically the identical margin by which the Nasdaq 100 outpaced the 60/40 portfolio over the identical time by November 1998.

These similarities are coincidental, in fact, however it’s value taking into account what adopted again in November 1998. Over the following 16 months, slightly than reverse course, the financial system, the inventory market and expertise shares all raced forward, by no means thoughts the political circus swirling round them. The Nasdaq 100 gained one other 183% from December 1998 to March 2000, whereas the S&P 500 and the 60/40 portfolio settled for 31% and 20%, respectively.  

The concern of lacking out unleashed on buyers already uncooked with tech envy throughout these fateful 16 months was greater than many might bear. Maybe most well-known amongst them is billionaire investor Stanley Druckenmiller, who scooped up web shares in 1999 after betting towards them earlier that yr. Drunk with success, he plowed a further $6 billion into tech shares simply earlier than they collapsed in early 2000, handing him a $three billion loss. Druckenmiller later recalled, “I already knew that I wasn’t supposed to try this. I used to be simply an emotional basket case and couldn’t assist myself.” He might as effectively have been talking for a whole era of buyers.

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