The stock market gained again on Tuesday and is on pace for a quarter for the ages.
The Dow Jones Industrial Average (.DJI) added 0.5%, or 131 points, while the S&P 500 (.SPX) gained 0.4% and the Nasdaq Composite (.IXIC) climbed 0.7%.
The S&P 500 is up 21.2% during the second quarter, putting it on pace for its biggest quarterly gain since the first quarter of 1975. It’s also the first time since 1932 that the market suffered a drop of 20% or more in one quarter only to be followed up with a 20% gain in the next, according to Bespoke Investment Group.
That’s quite a quarter, but the Nasdaq is off to an even better one. It’s up 31.6% since the end of March, putting it on pace for its second-best quarter on record, second only to the fourth quarter of 1999. And why shouldn’t it be? Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), and Facebook (FB) have been soaring—all four hit new all-time highs Tuesday—and even Alphabet (GOOGL) has been rallying. When the market’s biggest stocks can’t seem to have a bad day, neither can the stock market.
Don’t expect the so-called tech put to last forever. The tech sector now makes up 27% of the S&P 500, the highest since the dot-com bubble. On the other side of the ledger, financial stocks are now just 10% of the S&P 500, the smallest since February 2009, when it made up 9.8% of the benchmark. Subtract the financial sector weight from the tech-sector’s and you get 17%, the biggest gap since—you guessed it—the dot-com bubble, according to Sundial Capital Research data.
“Maybe the pandemic has fundamentally altered how consumers and investors will view the world,” writes Sundial Capital Research’s Jason Goepfert. “We don’t bet on ‘maybe.’ Rather we’d prefer to let history be a guide and look for times when multiple factors line up. And they’re lining up now to suggest that tech’s run, relative to other parts of the market, in particular, is likely becoming exhausted.”
Even noted optimist Ed Yardeni of Yardeni Research acknowledges that the market is “starting to party likes it’s 1999.” While acknowledging the risk of rising coronavirus cases, he also writes that stocks could surge even higher if, say, a vaccine for Covid-19 is developed or a treatment for the disease is discovered. If that happens, the economy could pick up even more, and the monetary and fiscal stimulus we’ve seen could continue to light a fire under stocks. “So stock prices could melt up like it’s 1999, then melt down like it’s 2000,” Yardeni writes. “That would be unfortunate, but it wouldn’t be the end of the world.”
Stocks could run a lot further if the late 1990s is a guide. Yardeni notes that the S&P 500 bottomed on Aug. 31, 1998, following the Russian debt default. The S&P 500 then rose 59.6%, while the tech sector soared 235%.
Now that’s a bubble.
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