I like to read older books over newer ones, and “hi”- stories over “new”- stories. Occasionally, I come across an article worth writing about. In this case I found several. A few from 1990 and a few more from 2000. These articles precede historical market pivot points and reveal some of the investor logic and sentiment driving portfolio decisions. Today we can look at these articles and know what happened next, but when we step into the uncertainty of their times, the right move is much harder to determine.
For instance, in 1989 you had many of the same fears and uncertainty around the markets that we have today. There was war picking up in the middle east, two years prior to the bear market of 89 there was the crash of 1987, the federal reserve ushered in a period of rate hikes to combat rising inflation, technology made inconceivable promises for industrial productivity. By 1990 inflation had peaked banks and real estate had suffered the greatest loss since 1974, the S&P 500 had made good gains by July, but from July to October it fell more than 20%. As the year closed out analysts were split between selling growth stocks and getting back to fundamentals or preparing for another bear market in 1991. Just like in 2023 a handful of stocks had pulled the index to new highs only to lose all the years gains and then some by October. If 1990 is any kind of teacher it would only seem to offer its lesson from hindsight rather than foresight, because from October of 1990 to the end of 1999 the stock market never hit those lows again and the S&P 500 index climbed over 400% during those 9 years. Some of the fastest growing stocks gained over 2000% during that time frame. Who could have foreseen the fall of the Berlin wall, the end of the gulf war, the collapse of the Soviet Union, a new era of technological globalization that would allow the right companies to become the first markets caps valued over $200 billion. The 1990s ended up being one of the strongest bull markets in us history, setting new precedents for market growth, stability, and especially the number of individuals invested in the market.
As internet companies, chip makers, and computer stocks soared in the 90s from record sales and earnings, 1999 only helped to push revenues higher, Y2K being one of the key drivers spurring on the markets. The federal chairman at the time had already warned repeatedly for 5 years that the market was overvalued, but it continued its climb. I was only 6 years old then and personally don’t remember Y2k, but both financial professionals in our office remember it well. Y2k pushed computer sales up like no other year because everyone from mom-and-pop shops selling knickknacks on their new website to CEOs of major energy corporations feared that their “old computers” couldn’t handle the new millennium. If 1999 was the mark of fearful consumption, the year 2000 would be the year nothing happened.
Y2k rolled through and not a single computer exploded, utilities did not shut off, the internet didn’t crash, and stock analyst began prognosticating another great bull market as the interest rate pause in June was announced. The irrational exuberance speech by the Federal Reserve chairman (Alan Greenspan) had lost its influence, but the effect of rate hikes through 1999 and early 2000 began to show. The famously dubbed dot.com bubble burst as internet-based companies who took out huge debt to afford new and Y2k resistant computers could not generate revenues greater than their adjustable-rate loans. March of 2000 was the last time the S&P 500 made a new high and would not break that high for another 13 years. Hundreds of listed stocks went bankrupt as the promised internet profits slowly faded into the backdrop. The US went into a recession for the first time since 1991 and markets continued making new lows for nearly 2 years. After 9/11, globalization came to a screeching halt as our country prepared to respond to the first attack on US soil since Pearl Harbor. The thirteen years that it took for the market to reclaim its peak in March of 2000 is often called the lost decade.
As we see and hear the rhymes of history we naturally wonder, “Which season are we about to enter?” Are we on the precipice of unprecedented growth hidden by the fears of recent crashes and bear markets, much like the 1990s? Or is this year more like 2000, as the hype fades around AI and new technology and global economies build new walls?
Perhaps more import to ask, “how can investors prepare for either season?” At Blacor we can individually construct your portfolio and offer ongoing advice to help guide investors to live in line with their goals. Check out our risk tool that helps identify your risk number and give you an idea of what you are comfortable risking in order get a your ideal return.
References:
By, Craig T. "Year-End Review of Stock Markets: Stock Fads Fade as Investors Return to the Basics for 1991 --- Earnings and Products Regain Importance." Wall Street Journal, Jan 02, 1991, pp. PAGE R3. ProQuest, https://www.proquest.com/newspapers/year-end-review-stock-markets-fads-fade-as/docview/398289958/se-2.
By Douglas R. Sease. "Year-End Review of Markets and Finance --- the Stock Market: Greenspan's Piloting Wins High Marks --- but Investors may have had A Rough Ride." Wall Street Journal, Jan 02, 1990, pp. PAGE R3. ProQuest, https://www.proquest.com/newspapers/year-end-review-markets-finance-stock-market/docview/398140793/se-2.
https://www.federalreserve.gov/fomc/minutes/ Search “FOMC minutes 1990-2001”
George Will George F. Will is a columnist for The Washington Post Writers Group. "ARE WE IN A `STEALTH BEAR MARKET'?: [FINAL EDITION]." The Commercial Appeal, Feb 20, 2000, pp. B6. ProQuest, https://www.proquest.com/newspapers/are-we-stealth-bear-market/docview/393874252/se-2.
Ignatius, David. "An Unlimited Stock Market . . .: [FINAL Edition]." The Washington Post, May 10, 2000. ProQuest, https://www.proquest.com/newspapers/unlimited-stock-market/docview/408644414/se-2.
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