Stock market indicator mirrors the pattern of the 2000 dotcom bubble
Despite the apparent rally in the stock market, there is a growing concern over a potential downfall in the sector, signaling uncertainty ahead.
Recent data shared on June 16 by the capital markets commentary platform, The Kobeissi Letter, has raised eyebrows. The current state of the S&P 500 is eerily reminiscent of the 2000 Dot-com bubble era. The data reveals that only 30% of S&P 500 stocks have managed to outperform the index year-to-date. This figure is only marginally better than the 29% recorded in 2023, indicating a second year of unusually low market breadth.
Looking back at historical data from 1990 to June 2024, it becomes evident that this trend is significant. In the past, the median percentage of S&P 500 stocks outperforming the index stood at 49%, showing strong and widespread market participation.
Lessons from the Dot-com bubble period highlight the risks associated with such low levels of market breadth. The years 1998-1999 and 2023-2024 have seen a similar pattern of underperformance, reminiscent of the Dot-com bubble’s narrow leadership and subsequent volatility.
The recent surge in the S&P 500, driven primarily by a handful of tech giants, raises concerns about the sustainability of the rally. This concentration of gains in a few high-flying stocks mirrors the conditions that led to the Dot-com crash, where a correction occurred when these stocks faltered.
The dominance of tech stocks in the S&P 500, particularly those venturing into artificial intelligence (AI), has been notable. Companies like Nvidia and Apple have seen significant market cap growth, pushing towards the $3 trillion mark. However, this concentration on a few companies poses risks, as the index’s performance is heavily reliant on them. The looming fear of an AI stock bubble burst adds to the uncertainty surrounding the market.
