This week’s post is shorter than normal due, at least in part, to our flights home Sunday night (I write these posts on Monday) taking longer than expected. We had flown out of state for a long weekend to watch a high school graduation that, in some ways, marked the end of an era as we and other close friends become empty nesters. My family and I have been lucky with on-time flights for a while, so I guess we were due.
Anyway, a late night was followed by a busy Monday, so time got compressed for this post. Still, I wanted to share an update to a chart we’ve looked at before and some commentary from my research partners at Bespoke Investment Group.
There has been lots of talk, especially lately, about the stock market being in a bubble. To get some historical context analysts and others often compare the stock market’s runup since ChatGPT was launched a few years ago to the 90’s tech bubble. The thinking is there are so many similarities to that timeframe that past performance could be indicative of future results, which is funny since probably every disclosure in my industry says investors shouldn't think that. It still happens all the time, however.
Of course, we have to be careful with historical comparisons like this because, as we all know, history doesn’t repeat itself… but it often rhymes.
Interestingly, and as we’ve discussed before, Mark Twain’s quote about that holds true when comparing the performance of the NASDAQ index (long considered a benchmark for tech stocks) since ChatGPT’s launch in late-2022 to that of Netscape’s performance post-launch in 1994 until its late-90’s demise. You’ll see this in the chart below and in the commentary from Bespoke.
Is the rhyming of charts a good forecasting tool? No, but it can still provide some context (even hypothetically) for how bumpy growth can be. The bottom line, I think, is that we probably still have room to run in the markets for a variety of reasons, but we need to accept the volatility that goes along with that. There are simply too many potential volatility catalysts to think otherwise.
From Bespoke…
For years now, we’ve been showing you updates of the chart to the right, comparing the performance of the Nasdaq since the launch of ChatGPT to its performance after the launch of Netscape in December 1994. To us, ChatGPT did for AI what Netscape did for the internet: it brought it mainstream. At least, that’s the way we looked at it.
While most were receptive to the comparison, there were more than a few who would roll their eyes and laugh, dismissing it as too simple. Slowly and steadily, though, as the comparison continued to play out, so did acceptance of it. Now, it seems as though a day doesn’t go by without "the experts" advising us that the Nasdaq's current trajectory is starting to look an awful lot like the post-Netscape era.
Whether it's with us or at us, we don’t care if people are laughing; everyone could use a little bit of levity in their lives! However, if this comparison to the late 1990s continues to hold, get your laughs in now. If it keeps up, you may be crying before too long. Based on the timeline, the current period corresponds to May 1998, and as shown in the lower right chart, the summer of 1998 was a volatile one. From late May through October 1998, the Nasdaq endured a peak-to-trough decline of 20% before bottoming out and staging one of the strongest rallies anyone around at the time will ever experience.
Like the critics noted years ago, predicting a sharp pullback this summer just because it happened in 1998 is way too simplistic. While the two periods have tracked remarkably well, there have been times when performance diverged. Our only point here is to note that the market has had a sharp rebound off the March lows, and even the strongest bull markets face roadblocks along the way.
Have questions? Ask us. We can help.
