It can also produce reflections on how the past may give a clue to what comes next. Julian Emanuel, strategist at Evercore ISI, sees a similarity between the Y2K stock market surge of the late 1990\u2019s and today\u2019s market, though he acknowledges the standard caveat: history seldom repeats but often rhymes.<\/p>\n
\u201cThe unrelenting momentum that has carried the S&P 500 to the round number of 5,000 has few equals in history, the standout example being the internet fueled rally off a similar market bottom in October 1998 versus the pivotal October 2022 low,\u201d says Emanuel in a note sent to clients this week.<\/p>\n
To recall, the Y2K phenomenon occurred during the nascent dot-com boom, when some technology stocks got extra propulsion from expectations companies would spend gazillions ensuring their computer systems could switch to 2000 when the new millennium began. Do we have a similar frenzy regarding AI?<\/p>\n
Here\u2019s Emanuel\u2019s chart showing the S&P 500\u2019s trajectory from those October lows he\u2019s citing. If the rhyming is rich then today\u2019s market may struggle to make much more headway in this cycle.<\/p>\n
<\/p>\n Emanuel is quick to note the differences. Today\u2019s valuations may be stretched at 22 times trailing twelve month earnings, but that\u2019s well below the 28 times seen at the Y2K\/dot-com bubble top.<\/p>\n And after the Y2K\/dot-com bubble burst in early 2,000 there was a spike in weekly initial jobless benefit claims a full year ahead of the 2001 recession. Current unemployment claims of around 210,000 and stoic consumer confidence data suggests little sign of such stress just yet.<\/p>\n <\/p>\n However, he\u2019s still worried by the similarities between now and then. \u201cThe price parallels, the positive feeling around the long term potential of generative AI and investors\u2019 new found confidence that money can be made in stocks \u2013 as it was in 1999 \u2013 despite a 10 year Treasury yield solidly affixed to 4%+, continues to expose equities to inflation, earnings and Fed policy disappointments,\u201d says Emanuel.<\/p>\n Indeed, he thinks the market\u2019s present \u2018Goldilocks\u2019 valuation paradigm is consistent with forward average stock returns of zero percent, regardless of whether a recession is averted or not.<\/p>\n <\/p>\n Consequently he favors defense. \u201cWe maintain our year end S&P 500 price target of 4,750 and reiterate our preference for communications services, consumer staples, and health care, sectors which have historically outperformed in the time from the Fed\u2019s last hike to the first rate cut,\u201d says Emanuel.<\/p>\n <\/p>\n U.S. stock-index futures YM00 NQ00\n <\/div>
\n Source: Evercore ISI
\n <\/span>
\n <\/figcaption><\/figure>\n<\/p><\/div>\n\n <\/div>
Source: Evercore ISI<\/h4>\n<\/figcaption><\/figure>\n<\/p><\/div>\n
\n <\/div>
Source Evercore ISI<\/h4>\n<\/figcaption><\/figure>\n<\/p><\/div>\n
Markets<\/h2>\n
\n <\/div>
\n ES00
\n were firmer early Friday as benchmark Treasury yields
\n
\n nudge higher. The U.S. dollar
\n
\n was little changed, while oil prices
\n CL
\n dipped and gold
\n GC00
\n traded around $2,030 an ounce.<\/p>\n