Page 25 - aruba-today-20190424

BUSINESS Wednesday 24 april 2019
A25

To some market vets, stocks are rallying like it's 1999

By STAN CHOE the longest on record. This
NEW YORK (AP) — The stock expansion, which began in
market has been so hot this the summer of 2009, could
year that it might need soon eclipse that one.
an ice-cold Fruitopia, or a "We could very well be in a
Zima. 1998 environment, where
The furious rally that's the yield curve remains in-
brought the S&P 500 to the verted sporadically for a
brink of another record, so short period of time, before
quickly on the heels of last steepening again," said
year's scary tumble, is re- Frances Donald, head of
minding some market vet- macroeconomic strategy
erans of the rebound of at Manulife Asset Manage-
late 1998. Then, like now, ment.
decisions by the Federal She says a recession could
Reserve on interest rates arrive in 2020, a relatively
helped send stocks soar- mild one. For now, though,
ing. Then, like now, high-fly- she says the stock market
ing technology stocks were could keep rising as inves-
leading the way. And, in tors see profits still to be
both instances, investors made.
wondered how much lon- To see why, consider the
ger the economy could conversations she had last
avoid a recession after In this April 11, 2019, file photo trader Jeffrey Vazquez's glasses reflect the screen of his handheld summer with the portfolio
many years of growth. device as he works on the floor of the New York Stock Exchange. managers she works with,
Few, if any, analysts on Associated Press when she first began call-
Wall Street are predicting ing for a 2020 recession.
a repeat of 1999 and 2000, into its expansion, one of economy." Today, compa- enon an "inverted yield "My question was: It's Au-
when the market's recov- the longest on record. But nies like Facebook, Micro- curve," and such a scenar- gust of 2018, if I could tell
ery ended up becoming turmoil in developing econ- soft and Netflix are alluring io has preceded past re- you with 100 percent cer-
too much of a good thing. omies around the world, because they're producing cessions, although it hasn't tainty there was going to
The S&P 500 surged nearly highlighted by the Asian strong growth even when been a perfect predictor. be a recession in 2020,
60 percent from its 1998 financial crisis and then global economic growth In 1998, some parts of the what would you do?" she
bottom and inflated into Russia's default on its debt, is slowing and low interest yield curve were also in- said. Their response: "Noth-
the dot-com bubble, only helped send the S&P 500 rates make conservative in- verted. ing, we would trade until
to burst in the dot-com down nearly 20%. vestments more unattract- "The froth is really starting the market got a whiff of
bust. The collapse dashed The Fed calmed worries ive. to pick up now," said Doug it."q
the dreams of day trad- that the turbulence abroad Technology stocks in the Ramsey, chief investment
ers in pajamas around the would dash the U.S. econo- S&P 500 have surged 33.9% officer at Leuthold Group.
country and helped usher my by slashing interest rates since the Christmas Eve "I would never argue that
in the 2001 recession. three times in three months bottom, most among the this is like the euphoria you
But the similarities between in late 1998. The S&P 500 11 sectors that make up saw in the late 90s — we're
1998-1999 and 20 years lat- recovered within a few the index. nothing close to that — but
er are plentiful enough that months. The market has prodded you're still positioned just
some investors are pushing The action then is reminis- a parade of tech compa- as precariously in chasing
the idea that stocks can cent of the market's move- nies to sell their stock to these large-cap growth
keep rising even with reces- ments over the last seven regular investors for the first stocks."
sion fears still hanging over months. Last winter, after time. Lyft had its initial pub- Besides the less-exuberant
the market. setting its all-time high on lic offering last month, and nature of this rally — inves-
Steve Chiavarone, equity Sept. 20, 2018, the S&P 500 Uber and other big names tors remain hesitant to put
strategist at Federated In- plunged 19.8% on worries should follow shortly. money into U.S. stock funds
vestors, says the S&P 500 that a recession was on These companies are gen- this year — another big dif-
may end the year at 3,100. the way. But the Fed again erally more seasoned than ference is that stocks are
That would be a 6.6% rise helped put a floor under their IPO counterparts two not as expensive as they
from Tuesday's close and a the stock market, this time decades ago, with more were in 1999, relative to
nearly 32% leap from Christ- by saying it may not raise in revenue. But most lose their profits.
mas Eve, when recession rates at all in 2019 after sev- money, and the last time In early 1999, the S&P 500
fears were at their height. en increases the prior two such a high percentage was trading at more than
"It is unfathomable to years. of companies going pub- 40 times its average earn-
someone at this stage, as it The S&P 500 has shot up lic were unprofitable was ings over the prior 10 years,
was in 1998, that you could 23.6% since hitting a bot- in 2000, when the dot-com adjusted for inflation. Now,
have meaningful upside in tom on Christmas Eve, bubble was at its height. it's trading at a price that's
the market given where we echoing the 24.1% climb for All this is happening while closer to 31 times. That's still
are," Chevron said. "I think the index in the same num- the bond market has sent higher than its historical av-
you have to be respectful ber of trading days after it signals of caution through erage of 20 times over the
that tops are impossible to hit a bottom in August 1998. what's known as the yield last half century, but not as
call and that things can get High-growth stocks are also curve. Recently, some key eye-wateringly expensive.
ahead of themselves." leading the way, once short-term Treasury yields In 1998, the economy was
In the summer of 1998, the again. In the late 90s, inves- were higher than for some able to avoid recession,
S&P 500 was at a record tors flocked to technology longer-term Treasurys, and the expansion that be-
high, and the U.S. economy stocks because they were which is unusual. Market gan in 1991 ended up last-
was more than seven years going to drive the "new watchers call the phenom- ing into 2001 and became