I'm seeing some parallels with 2000 – but I'm not predicting a meltdown; Too early to buy regional-bank stocks; Renting versus buying in housing
1) Some new charts and data in one of my favorite blog posts got me thinking about the parallels between today's market and the one in 2000...
That raises questions of whether we're in a bubble, if it's time to dump shares of the tech giants, and whether we might see a market meltdown or melt up.
As longtime readers know, I'm a big fan of Charlie Bilello – the chief market strategist at wealth-management firm Creative Planning. In particular, I love his always-insightful weekly blog post, The Week in Charts.
And his latest one has some big comparisons between today's market and the one back in 2000 in the wake of the dot-com bubble.
These two charts show that the relative valuations of large-cap stocks over small-cap ones and large-cap growth over large-cap value recently reached highs not seen since 2000 – almost a quarter century ago:
I remember those days well...
Just after the peak of the Internet bubble, investors had piled into a small handful of big growth stocks – mostly in the tech sector, like Cisco Systems (CSCO), Microsoft (MSFT), and Intel (INTC) – and shunned everything else.
Having already learned the basic principles of sound investing from Warren Buffett and the late Charlie Munger, I played it almost perfectly...
I sold the few growth stocks I had been riding for a few years – like Dell, AOL, Microsoft, Intel, and Gateway. Meanwhile, I scooped up beaten-down stocks like Deb Shops (a quick double), the A-class shares of Berkshire Hathaway (BRK-A) (up about 15 times since then), Ross Stores (ROST) (up nearly 100 times), and Apple (AAPL) (up about 584 times).
If only I had fully held on to these stocks over the longer term – a lament I discussed in yesterday's e-mail about Netflix (NFLX)!
So are we in a similar situation today? Is it time to dump the big-cap tech stocks, like my favorites – Amazon (AMZN), Meta Platforms (META), and Alphabet (GOOGL)?
I think not (though I wouldn't argue with someone who had some big gains in these already and wanted to take some profits off the table, either)...
We are nowhere near the extreme bubble territory we were then, so I'm not predicting a meltdown.
In fact, I think a melt up is more likely.
Rather than resembling the peak in March 2000, today feels to me more like early 1999. And look at what happened to the tech-heavy Nasdaq Composite Index in the subsequent 15 months – it doubled:
In summary, I would hang on to the large-cap tech winners... but would look to put new cash to work in small- and mid-cap value stocks.
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2) Moving on to more charts from Bilello's latest Week in Charts post...
He also included this chart, showing how regional bank stocks, relative to the S&P 500 Index, have traded back down to near their all-time lows from a year ago after Signature Bank and First Republic Bank went under:
Regional-bank stocks are certainly beaten down. But I think it's too early to start bottom-fishing in this sector, for reasons I outlined in a series of e-mails in which I tapped the expertise of my banking-expert friend in late January and early February (my February 2 and February 8 e-mails have links).
3) Lastly, Bilello shared a series of interesting charts showing how expensive it has become – and still is – to buy a home.
This is due to a sharp increase in mortgage rates (the rate on a standard 30-year fixed-rate mortgage has gone from less than 3% to around 7% today). And it's combined with home prices continuing to rise because existing-home inventories have plunged because nobody wants to give up a far-below-market 3% mortgage.
As a result, housing affordability is close to an all-time low. Take a look at this chart from Bilello's post:
It's a different story in the rental market... Vacancies have risen, so average rental costs are down over the past year:
As a result, Bilello correctly concludes: "It's never been more expensive to buy a home versus renting it than it is today." Take a look at this next chart:
This is why I told my sister – who moved last year from Kenya to take a new job in Washington, D.C. – to rent rather than buy (as I discussed in my May 15 e-mail).
Best regards,
Whitney
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