A huge difference between the dot-com bubble and today; I don't expect the government shutdown to derail the markets; Paul Tudor Jones predicts a 'blow off' top; Follow-up on Interactive Brokers; 60 Minutes segment on 'Guy Fieri and 24,000 missing tequila bottles'
1) Every day, I'm bombarded with charts and data that point to extreme valuations – if not a bubble – in the stock market.
Below is a new one – courtesy of the latest Week in Charts blog post from Creative Planning's Charlie Bilello...
It shows that the dividend yield of the S&P 500 Index is close to the all-time low it reached in early 2000, at the peak of the dot-com bubble:
This looks ominous. But having lived (and run a hedge fund) through that period of total madness a quarter-century ago, I don't think it's the same today...
Yes, valuations are high... so investors should have modest expectations for stocks over the next five years.
And, yes, there are pockets of foolishness that will surely crater. (I highlighted some of these in yesterday's e-mail.)
But there's a huge difference: Earnings growth has supported the current run-up in the tech sector.
Take a look at the chart shared in this recent post on social platform X:
As the post notes regarding these charts:
Back in the late 1990s, the IT sector price shot up way faster than the earnings. Prices jumped almost 600%, while earnings only grew around 30%. That's what people called the "irrational exuberance" period – prices disconnected completely from company fundamentals.
Now look at the current cycle on the right. Since the ChatGPT launch in late 2022, both the price and earnings curves have moved up together. Prices are up about 97%, but earnings have also climbed sharply, nearly 87%.
I've said it time and time again... If you own quality stocks or index/mutual funds, stay the course.
2) I certainly don't think the government shutdown – which real-money bettors on Polymarket think is more than 80% likely to extend for at least another week – will derail the markets.
Take a look at the table below from Bilello's latest Week in Charts. It shows that of the 21 prior shutdowns, the market has risen during 13 of them (62%) – including the past six:
As I said in my October 2 e-mail, I wouldn't be surprised to see some short-term volatility. But the shutdown is all just noise for long-term investors.
3) I also continue to believe that a spike upward is more likely for stocks than a crash.
Investing legend Paul Tudor Jones agrees. As this recent CNBC article notes, he thinks the "ingredients are in place for massive rally before a 'blow off' top":
"My guess is that I think all the ingredients are in place for some kind of a blow off," Jones said Monday on CNBC's "Squawk Box." "History rhymes a lot, so I would think some version of it is going to happen again. If anything, now is so much more potentially explosive than 1999."
The founder and chief investment officer of Tudor Investment said today's market is reminiscent of the setup leading up to the burst of the dot-com bubble in late 1999, with dramatic rallies in technology shares and heightened speculative behavior.
Jones thinks the upcoming rally could be "so much more potentially explosive than 1999" because of the Federal Reserve's easing cycle and the government's deficit spending today. As the article continues:
The difference between now and 1999 is the U.S. fiscal and monetary policy, Jones noted. The Federal Reserve had just begun a new easing cycle, whereas rate hikes were on the way before the market top in 2000. The U.S. is now running a 6% budget deficit, while in 1999, there was a budget surplus of $99,000, Jones said.
"That fiscal monetary combination is a brew that we haven't seen since, I guess, the postwar period, early '50s," he said.
That said, I share his view that if we do get a big run-up in the market, investors will need to sell into it "because there will be a really, really bad end to it." Here's more from the article:
"You have to get on and off the train pretty quick. If you just think about bull markets, the greatest price appreciations always [occur] the 12 months preceding the top," Jones said. "It kind of doubles whatever the annual averages, and before then, if you don't play it, you're missing out on the juice; if you do play it, you have to have really happy feet, because there will be a really, really bad end to it."
4) Following up on multinational brokerage giant Interactive Brokers (IBKR)...
I sent Friday's e-mail with my "first look" at the stock to my friend and former colleague Matija Pecotić, who works there in Institutional Sales. And he gave me permission to share his reply:
You covered the history and culture well. What often gets missed is how sticky the institutional side is – hedge funds, RIAs, and prop firms tie in through clearing, financing, and global market access. Once they build on the tech stack, they rarely leave. Another overlooked driver is net interest income – rising rates have turned client cash into one of the biggest engines of earnings.
Thank you, Matija!
He also said folks could e-mail him with questions about the company – you can do so by clicking here.
(To be clear, this isn't an endorsement, recommendation, or solicitation by me or Interactive Brokers.)
5) Turning to another topic I've covered recently – and plenty of times in the past...
I'm talking about scammers. They aren't just targeting individuals, but businesses as well.
This 60 Minutes segment details their elaborate scheme in which they stole 24,000 bottles of Santo Tequila, a brand founded by Food Network host Guy Fieri and former Van Halen frontman Sammy Hagar.
Check it out... and remember to stay vigilant!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.