{"id":7945,"date":"2018-07-20T23:21:39","date_gmt":"2018-07-20T23:21:39","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=7945"},"modified":"2018-07-21T18:36:02","modified_gmt":"2018-07-21T18:36:02","slug":"this-market-is-nothing-like-the-late-1990s-except-for-one-metric","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=7945","title":{"rendered":"This Market is Nothing Like the Late 1990&#8217;s (Except for One Metric)"},"content":{"rendered":"<p>Having lunch with a client yesterday in downtown Chicago, the discussion around the market was how today&#8217;s SP 500 action is nothing like the 1990&#8217;s.<\/p>\n<p>Bespoke noted this week that Tech&#8217;s market cap weighting within the SP 500 is 26% (which would be larger if Netflix and Amazon were moved from Consumer Discretionary to the Tech sector), which is the only real similarity to the late 1990&#8217;s and even then in March, 2000, the Tech weighting as a percent of the SP 500 peaked at 33%, still higher than today&#8217;s weighting.<\/p>\n<p>What&#8217;s missing from today&#8217;s market ?<\/p>\n<p>The brutal corrections.<\/p>\n<ul>\n<li>1995&#8217;s roughly 35% SP 500 return led by Microsoft, Netscape, AOL, etc. etc. was steadily higher all year, and then in the Spring 1996, Tech saw a sharp selloff (from roughly 1,200 on the COMP down to 1,000 by mid-July &#8217;96) which ended with the Intel earnings report in July &#8217;96.<\/li>\n<li>1997 saw the real damage start to occur with the Thai Baht and Malaysian Ringgit devaluation in late July &#8217;97 which led to rolling currency devaluations throughout Southeast Asia in the last 6 months of 1997, resulting in a sharp correction in the SP 500 in late 1997, ending in January &#8217;98.<\/li>\n<li>In 1998 we saw the first of the banking crisis&#8217; with LongTerm Capital Management&#8217;s ill-advised positions, causing the SP 500 to fall from 1,190 to 923 in a two month span, only to see Chairman Greenspan reduce the fed funds rate in late Sept, early Oct &#8217;97 which sent the SP 500 rallying sharply into year-end 1998. The SP 500 rallied 38% from its Sept &#8217;97 lows to its December &#8217;97 close &#8211; think about that.<\/li>\n<li>In 1999 we saw a relatively flat market from March &#8217;99 through mid-October &#8217;99 when the mother of all Nasdaq blowoffs occurred: the Nasdaq rallied from roughly 2,600 in mid-October &#8217;99 to 5,132 as of March &#8211; April, 2000.<\/li>\n<\/ul>\n<p>Today&#8217;s market trades like it&#8217;s on sedatives, which it may be after the 1990&#8217;s and 2000&#8217;s.<\/p>\n<p>My favorite stat I talk with clients and prospects about when the opportunity arises is that for the five years from 1995 to 1999 (inclusive) the SP 500&#8217;s total return was roughly 125%. In other words the SP 500 &#8220;averaged&#8221; 25% a year for 5 years in a row. Think about how unusual that is&#8230;<\/p>\n<p>The next decade from 2000 through 2009 the SP 500 returned a cumulative 12.5% ( or averaged roughly 1.25% per year for 10 years).<\/p>\n<p>The source of these numbers is the former Ibbotson Stocks, Bonds, Bills and Inflation handbook which is no longer available and is now a part of Morningstar&#8217;s Advisor package.<\/p>\n<p><em><strong>Thomson Reuters SP 500 Earnings Update:\u00a0<\/strong><\/em><\/p>\n<p>This Week in Earnings wasn&#8217;t available but the data has been pieced together from Thompson&#8217;s Earnings Scorecard published this morning:<\/p>\n<ul>\n<li><strong><em>Fwd 4-qtr est:<\/em> <\/strong>$168.39 vs last week&#8217;s $168.26<\/li>\n<li><strong>PE ratio:<\/strong> 16.6x<\/li>\n<li><em><strong>PEG ratio:<\/strong><\/em> 0.77x<\/li>\n<li><strong>SP 500 earnings yield:<\/strong> 6.01% vs last week&#8217;s 6.01%<\/li>\n<li><em><strong>Year-over-year growth of fwd est:<\/strong><\/em> +21.48%<\/li>\n<\/ul>\n<p>The year-over-year growth of the forward estimate peaked 4 weeks ago at 21.8% and hasn&#8217;t made a new high since, although we need to give it a few more weeks to see what we can see.<\/p>\n<p>The growth rate of the SP 500 earnings will ultimately slow as we move in 2019 and we lap the corporate tax rate reduction for 2018.<\/p>\n<p>Readers should expect that to happen.<\/p>\n<p>There are a couple things happening with the data but the trends aren&#8217;t long enough yet to be conclusive.<\/p>\n<p>The SP 500 closed last week at 2,801 and this week at 2,801. It continues to hold 2,800 &#8211; a good sign.<\/p>\n<p>The 10-year Treasury yield finally jumped this week from 2.83% to 2.89%.<\/p>\n<p>Next Friday, July 27th, we see the first look at q2 &#8217;18 GDP (advance GDP) &#8211; that will be an important number for the bond market.<\/p>\n<p>Stay tuned &#8211; more to come over the weekend.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Having lunch with a client yesterday in downtown Chicago, the discussion around the market was how today&#8217;s SP 500 action&hellip;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[190,91],"tags":[],"class_list":["post-7945","post","type-post","status-publish","format-standard","hentry","category-10-year-treasury-yield","category-weekly-earnings-update"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7945","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=7945"}],"version-history":[{"count":7,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7945\/revisions"}],"predecessor-version":[{"id":7952,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7945\/revisions\/7952"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7945"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7945"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7945"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}