S&P 500 powers past 2,000 with speed approaching dot-com bubble

Lu Wang
Bloomberg News
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The Standard & Poor’s 500 Index jumped above 2,000 for the first time ever, building on a rally with a velocity approaching the strongest stretch of the 1990s dot-com bubble.

Investors who owned the index when the advance began on March 9, 2009, are sitting on price appreciation of 195.5 percent, or 24.5 percent a year on average, according to data compiled by Bloomberg. That compares with a gain of 236 percent, or 27.1 percent annually, over an equal amount of days ending on March 24, 2000.

Similarities to the technology-fueled gains of two decades ago are multiplying with the bull market approaching three years without a decline of 10 percent or more. In one respect the two periods are different. The dot-com bubble peaked with the S&P 500 trading at close to 30 times annual earnings of its companies, while the valuation is about 19 times now, data from S&P Dow Jones Indices show.

“If you look at the valuations then versus now, it’s night and day,” Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, S.C.-based Greenwood Capital Associates LLC, said in a phone interview. “This time around, the move we’ve seen has been much broader. The implication is that we have more sustainable circumstances now than we had then.”

The S&P 500 rallied as much as 0.7 percent to 2,001.95 before paring gains on signs of more corporate takeovers and stimulus for the European economy. It closed Monday at 1,997.92, up 0.5 percent. The S&P 500 is up about 8 percent this year on bets the Federal Reserve will support the economy even as it shows signs of gaining strength.

It took the S&P 500 16 years to reach the 2,000 milestone after achieving 1,000 on Feb. 2, 1998. Howard Silverblatt, an index analyst at the New York-based S&P Dow Jones Indices, said he’s been saving a bottle of Dom Perignon champagne to celebrate the occasion.

“We got some glasses here, the bottle is chilled,” Silverblatt said in a phone interview, adding he recently ordered another bottle for when the S&P 500 reaches 4,000. “The technical and fundamentals are still good. Cash is up there. Earnings are holding up.”

This bull market has seen widespread gains across all kinds of companies, unlike the technology bubble when the best performance was concentrated in computer shares. The S&P 500 Equal Weight Index, which strips out biases related to market value, has risen an annualized 28 percent since 2009, almost double the return from the last half of the Internet bubble.

“I don’t make a living forecasting market levels, but I would guess we have another 10 to 15 percent upside over the next 12 months before the going becomes more difficult,” Brian Barish, who helps oversee about $11.5 billion as president of Cambiar Investments LLC in Denver, said in an interview.

Viewed as one long bull market beginning in October 1990, the dot-com bubble is much larger than the current rally. The S&P 500 climbed more than 400 percent over that stretch and the Nasdaq Composite Index increased 15-fold, producing annualized returns of more than 33 percent for almost 10 years.

The Nasdaq peaked at 5,048.62 on March 10, 2000, and would have to rise another 11 percent from its level of about 4,552 now to surpass that record. Since stocks bottomed five years ago, the gauge’s best annual performance was in 2009, when it rose 44 percent. That’s about half its return in 1999.

The current bull market isn’t close to being over, making it still a good time to buy stocks, according to John Manley, chief equity strategist for Wells Fargo Funds Management.

“Investors who say, ‘It’s up too much, you can’t buy it’ or, ‘It hasn’t gone down enough times’ have been playing a fool’s game,” Manley, who helps oversee about $233 billion for Wells Fargo Funds Management in New York, said in a phone interview. “The Fed’s not about to rein in the economy any time too soon.”

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