It may be time to worry like it’s 1999

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Business4 min read

**It may be time to worry like it’s 1999Analysis by**[**Allison Morrow**](https://www.cnn.com/profiles/allison-morrow)**11 hr ago**

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New York Stock Exchange closing on Friday, ...

A version of this story appeared in CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free here.New York —  

Eye-popping investments in tech infrastructure.

Lofty predictions for workforce transformation.

Heavy speculation in financial markets.

Is it 1999 all over again?

For a handful of veteran Wall Street analysts, the dot-com deja-vu is back. And yes, some have been banging this drum for years, shouting the word “bubble” only to watch valuations climb ever higher. But there are new macroeconomic shocks that have put the stock market’s meme-like mania under renewed scrutiny — particularly from the folks who were there when the music stopped at the turn of the century.

“There is definitely a generational breakdown,” says Steve Sosnick, chief strategist at Interactive Brokers.

Those who went through the internet bubble are having flashbacks, while younger investors have never met a dip that didn’t make sense to buy.

“If you weren’t trading in 1999-2000, then you’re in luck,” longtime market technician Helene Meisler wrote on social media last week. “This is what it was like. Now you can experience it.”

(Word to the wise, newcomers: It didn’t go great.)

Why the sudden rush of memories for the days of Y2K, Delia’s, Britney Spears and some of the best movies ever made?

It’s partly about AI. Partly about the war. And partly about a US economy that looking increasingly vulnerable.

“History doesn’t repeat, but it often rhymes,” Sosnick said. “And there are several rhyme schemes here that are plausible.” (Though, he notes, none of the parallels mean we’re necessarily doomed for a repeat of the dot-com bust.)

First up: The April/May stock market rally.Not even a global energy shock is putting a damper on the AI party. Kim Soo-hyeon/Reuters

Despite the black-swan event of the Strait of Hormuz closing, wars in the Middle East and Eastern Europe, a slowing US labor market and the vanishing likelihood of the Fed cutting rates this year, tech stocks are on a tear.

The Nasdaq is up more than 20% since its March 30 nadir. The Philadelphia Semiconductor Index, meanwhile, shot up a mindboggling 70% between late March and Monday’s close. And although chip stocks led a pullback on Tuesday after a worse-than-expected inflation report, stocks are still trading comfortably near record highs.

On Friday, stocks showed another eerie historical rhyme, when the S&P 500 hit a record high despite 5% of its components hitting 52-week lows (an indicator of the extreme concentration in tech stocks propping up the broader market).

That’s only happened four times, according to analyst Jason Goepfert. The three other times?

• July 1929

• January 1973

• December 1999

The bullish argument goes that earnings season went better than expected, so the rally isn’t irrational. Dan Ives, one of the biggest tech stock cheerleaders on Wall Street, told CNBC on Monday that the party is just getting started. “We are in the early days still of the AI revolution,” he told Squawk Box. “The haters will hate, and we know that.”

But some veteran analysts still see red flags.

The fact that Big Tech and smaller semiconductor companies at the heart of the rally are mostly profitable and cash-flow positive is a solid case for optimism that we’re not repeating the mistakes of the 1990s. But the scale of AI data center buildout makes the telecom companies internet buildout look quaint. According to Sosnick, investors today may be too focused on companies’ rosy short-term guidance and assuming the good times will last — one of the many follies of those who got burned in 2000.

And it’s not just that stocks are flying high. It’s about what else is happening at the same time.The Y2K prep era was a wild time. Steve Liss/The Chronicle Collection/Getty Images

Back in the late ’90s, the Federal Reserve (and everyone else) was sweating a potential Y2K calamity. So to get out ahead of the potential public freakout, the Alan Greenspan-led central bank flooded the financial system with cash to prevent hoarding or bank runs. That monetary intervention poured fuel on the 1999 tech rally, which then went bust in 2000.

The current rally is happening without any help from the Fed, which hasn’t cut interest rates since December and may not do so again until 2027. The rally is also going strong despite the fact that oil prices are sharply higher, bond yields are rising, inflation is spiking and consumer sentiment is at an all-time low.

Since the US and Israel attacked Iran on February 28, stocks have rallied on just about any hint of a ceasefire or agreement to reopen the Strait of Hormuz. But the market is never penalized when those touted deals fail to materialize, Sosnick notes.

Michael Burry, who famously anticipated the housing market crash in the late 2000s, wrote on Friday that the latest rally “feels like the last months of the 1999-2000 bubble.”

“Stocks are not up or down because of jobs or consumer sentiment,” Burry wrote. “They are going straight up because they have been going straight up. On a two letter thesis that everyone thinks they understand.”

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