SP 500 Index, 1/1/2000 – 4/13/2000:
If you don’t remember the years 2000-2003 in the U.S. stock market, let me refresh your memory. Market headlines were dominated daily by companies that had been around for years but not many decades, the Nasdaq Composite Index was the 8th wonder of the world, and some young guy named Stuart on a discount broker TV commercial talked about wanting to not only beat the market, but smash it, destroy it, etc.
In 1999 the market had advanced, but the “market” was essentially a couple of handfuls of these “hot” tech stocks that made the overall market look more upwardly mobile than it actually was. And if you were one of those old fuddy-duddies who preferred to invest in high-quality growth stocks and traditional dividend stocks, your returns were dwarfed by what you could do in Nasdaq investing. This was really the first time that investors en masse even figured out what the Nasdaq was, as that exchange made its name as the tech-heavy alternative to the grand old New York Stock Exchange (NYSE).
I have been having flashbacks to that year 2000 market quite a bit here in 2017. Now, the environment is certainly not to the same level of excess as that heady period. But there is sort of quiet confidence that whatever comes our way economically or geopolitically, the stock market will shake it off without much damage. Time will tell, but as a chartist, I see some formations starting to develop that made me want to write this.
Below we have the SP 500 so far this year. The market is being led by tech stocks again, and a handful of sexy companies in social media, autos and other industries that are dominating the headlines. But as in 2000, the market’s persistent momentum might just have reversed during the month of March, with the 2017 edition occurring right at the start of the month. There are so many factors that go into my assessment of markets, stocks and strategy. But with this past week’s world turmoil-inspired dip, there is an eerie similarity to 2000 in the price movement, even the dates do not exactly line up (nor should we expect them too…remember, history rhymes instead of repeating).
SP 500 Index, 1/1/2017 – 4/13/2017:
If this turns out to be more than the market’s latest false alarm, what does 2000 tell us about a potential path forward for stocks? Well, back in 2000, that March dip turned into an April rout, as the SP 500 dropped over 10% from mid-March to late April. The initial shock of that turned the market sideways but in a volatile range through the summer, before the real acceleration to the downside began in earnest in September, 2000. The chart below shows that the SP 500 closed off about 9% during 2000, but that was the first of three consecutive down years that saw the market lose about half its value.
SP 500, full year 2000: