Stock Talk - Dot-Com Era (Oct. 1998–Mar. 2000) vs. Today (Apr. 2025–Current): 10 Similarities and Differences

Starting point is 00:00:00 Okay, everyone, thanks for joining us for this week's Stock Talk. This week, we're going to cover 10 similarities and 10 differences between the AI movement that we're seeing right now and the dot-com bubble back in 1997 through 2000. The investment team here at Old Carvis has been talking about AI and the dot-com cycle for over a year. We were early in recognizing AI capital spending billout and the similarities between the two periods. We saw the comparison as encouraging, while many others were worried that the market, was nearing another bubble peak. The highest level, both periods were driven by the belief that a major new technology would reshape the economy. Back then, way back then, almost 30 years ago, October 1998 post-long-term capital management blowing up through 2000, Internet, and

Starting point is 00:00:48 telecommunications led the way. April 2025 post-terraintrump through current, it's artificial intelligence, capex boom, and infrastructure buildout. Let's start off with three, charts we've shown for the better part of a year. Overlays the S&P 500, the SOX SACs Semiconductor Index, and the semi-equipment index. That is the most leveraged CAPEX sector I could find dating back to the time period in the 90s. Our starting points, once again, long-term capital management blow up in April last year tariff tantrum. Each were down minus 21% peak to trough in the S&P 500. Maybe that's the wrong starting point, but so far it's hard not to see the similarities in both its accuracy and precision.

Starting point is 00:01:31 Here's the S&P 500, chart of the SOX Index, and then finally, a chart of the Semi-Equitment Index, the overlays from periods back then and now. Take a look at those for a little minute. Investors, qualitatively, the biggest difference in the economy back in 1999, it was growing faster in operating at lower inflation than we currently are.

Starting point is 00:01:51 While today's economy faces higher inflation, we have a heavier government debt, as well as more geopolitical, uncertainty. From October 1998 through March 2000, investors poured money into internet stocks. Today, investors are pouring money into artificial intelligence. Someone with 35 years of equity portfolio management experience, let's compare the two periods. Our team is here to give you 10 similarities and 10 differences to consider. First, the technology revolutions in each period. Similar in both periods, investors believed a new technology could reshape the global economy. In 1999, the technology

Starting point is 00:02:29 was the internet and the wireless data build out. Now, it's AI and capital expenditures tied to data centers and energy infrastructure. Differences back then, in 1999, many public internet companies had little to no revenue or earnings. Today, publicly traded AI leaders, you all know the names are highly profitable and throwing off substantial cash flow, albeit no longer free cash flow. So the second point, the S&P 500 stock market performance. Back then, 16 months of great performance. The S&P 500 delivered strong gains in both periods. He saw the charts earlier. In both cases, a small group of bigger tech stocks did most of the heavy lifting. Difference, back in 1999, almost all gross stocks participated in the rally, both big cap,

Starting point is 00:03:18 and small cap. Today, while small cap technology stocks are working, performance is mainly concentrated in a handful of mega-cap AI companies. Third point, the NASDAQ composite, the tech indexes most people look at. The similarities in both period, the NASDAQ performance outpaced the S&P 500 by a wide margin. Investors were eager to chase fast-growing technology stories in both cycles. The difference, the NASDA gained nearly 86% in 1999 by itself. Current gains are strong, but still well below that speculative surge in 1999. Okay, the fourth point, semiconductor stocks, one of my favorite, the Sox Index. Similarities, semiconductor and optical stocks were market leaders in both periods.

Starting point is 00:04:08 In both cycles, chips and optics were viewed as the picks and shovels behind the technology boom. We've shared this comparison for the last 12 months. The difference in 1999, chip demand came from PCs and teleco equipment. Today, demand is driven mainly by AI data centers and cloud computing, and more recently, some agenetic AI server demand. Fifth point, interest rates. Similarity in both periods, the Federal Reserve grew concerned that markets were starting to overheat a bit.

Starting point is 00:04:41 Difference, back in 1999-2000, the Fed would was aggressively raising rates after they cut rates in October 1998 defend off the long-term capital management collapse. Today, the Fed was gradually cutting rates after its inflation fighting campaign of 2022. Key point, in 2000, the Fed was tapping the brakes. Today, it's not yet tightening economic policy. Sixth point, inflation. Similar, maybe. In either period was inflation consistent, an immediate crisis. Key word here is crisis. The difference back in 1999, 2000, inflation was much lower during the dot-com time. And the Fed spent a decade or two trying to figure out how to get inflation back above its 2% goal. Today, inflation is well over the Fed's stated 2% goal,

Starting point is 00:05:34 and it is sticky. Key point here, today's investors and the Fed still have inflation shock of 2022-2020, 2003, fresh in our minds. 7th point. Real GDP growth. Similarities, economic growth remained positive in both periods. The difference? Back then, in 1999-2000, the economy was growing much faster. Housing was booming back then as well. And dot-com.

Starting point is 00:06:00 Today, real GDP growth is strong, but slower. Back then, it was 5 to 7%. Now, it's 2 to 4%. The economic momentum is there. It's been building again after the first quarter slowdown. here in the second quarter, but it's not anywhere near what it was in dot com. Simply put, the U.S. economy was running much hotter during the dot-com boom. Okay, we're on our eighth point. Oil prices, energy prices. They're in the press all the time.

Starting point is 00:06:29 Back then, oil and energy prices rose sharply and due to economic growth largely back then. Currently, it's due less economic growth and more to geopolitical concerns. Today, oil prices are far higher in absolute terms, but they have yet to rise in the same percentage or the same degree as they did in Dotcom. Back then, oil prices started from a lower base. I think it was maybe $12 to $15 a barrel. They got to about $60 to $65 a barrel at their peak. That's a doubling or tripling during dot-com expansion. Today, oil prices were about $65 a barrel before the Iranian crisis hit 100. So they're up 50 to 100% at that little peak there on the run, but they're not up anywhere between 150, 200%, which would bring concern to the markets. In both periods, higher oil prices did add to inflation

Starting point is 00:07:23 worries, and they eventually slowed the economy. Ninth point, the U.S. dollar in geopolitics. So the U.S. was the world's dominant economic and military power in.com. Way back then, China was just getting started. It is quickly. gained ground over the last 20 years. Capital flowed into the U.S. financial system in each cycle. Back in dot-com, everyone wanted to invest here in the United States. More recently, over the past nine months, money has flowed here out of emerging markets. Back then, geopolitical conflicts, we had them, Kosovo, we had Y2K computer concerns, but we had relatively stable geopolitics throughout the rest of the world. Today, Russian-Ukraine war, China-Taiwan tensions, Iran, Iran,

Starting point is 00:08:11 more in the Middle East conflicts and trade and tariff disputes. So much greater geopolitical concerns now than way back then. So if you stayed with me this long, I come to my 10th and final point. Cultural and investor psychology. Listen, investors, there is a lot of similarity because there's plenty of public excitement in AI stocks. Back then, there's excitement of dot-com stocks. Back then, online trading was a new thing. Anyone over 60 in age can't forget. the wonderful Ameritrade commercial was Stewart, begging on as supervisor to buy a few shares of, go ahead, wait for at Kmart, electronically for $8 a trade

Starting point is 00:08:51 to go ahead and light this candle. Today, investors are younger, are enabling prediction markets and automated algorithmic trading, holding younger investors' attention. Media coverage was intense in both periods, although media outlets have changed immensely. There was no YouTube, social media,

Starting point is 00:09:09 or streaming services, dominating media back then like they are now. Everyone, there was FOMO, fear of missing out during both periods. Investors worried about missing the next big thing, the next big winner. Difference, in 1999 enthusiasm centered around so's day trading and internet stocks. Today, it centers around AI, data centers, and automation and robots. Last little point for fun historical coincidence. In 1999, the NBA Finals was the last time the NBA NICS meta-finals. Guess who they played in 1999? Yep, you guessed it as San Antonio Spurs.

Starting point is 00:09:47 Who won that series, games, four games to one. That's quite a coincidence, if nothing else. So investors, thank you for bearing with me. So everyone, thank you for bearing with me. And a portfolio manager, investor, conclusion to all this, the case for similarities, there is a major technology, being driven by capital expenditures. Semiconductor stocks were leading the way they still are. Stock market momentum remains strong. Leadership is concentrated in growth stocks. Investors are very excited

Starting point is 00:10:18 about transformation in innovation in the marketplace. The case for it's different this time? Today's AI leaders are highly profitable businesses with huge cash flow, albeit it's now negative free cash flow. Inflation is higher now than it was back then. GDP growth is slower now than then, but our country has tens of trillions of dollars of more national debt. Geopolitical risk is meaningfully higher now than it was in the late 1990s. So what's the final assessment? Today's stock market continues to look a lot like dot com light. The clear similarities are the excitement around technology, leadership from semiconductor stocks, and investor psychology. Biggest difference, valuations, the lower starting point for interest

Starting point is 00:11:01 rates, federal reserve policy, inflation, economic growth, and the fact that today's market leaders generate real earnings and cash flow. For long-term investors, that might be the most important distinction. If today's market is somewhat along the lines of 1999, our team believes we likely move past the seventh inning stretch in April and still have a few strong endings left supported by solid revenue, margin, and earnings growth, at least through the third quarter of 2006. As a retiree or pre-retiree, we know it can be difficult to stay patient with your portfolio when financial news is designed to stir your emotions. Most often, though, the best approach is to stay focused on what matters most of our time to stocks, earnings, and earnings growth. Right now,

Starting point is 00:11:45 that's what the market is watching most closely. For now, stay disciplined and stay diversified and focused on what's real, not what's just exciting. Whether your priority is growth, income, or a combination of both, the Oak Harvest team is here to help you plan for your family's financial future, no matter where you're at in your career or in your retirement journey. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change.

Starting point is 00:12:26 without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing, involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Dot-Com Era (Oct. 1998–Mar. 2000) vs. Today (Apr. 2025–Current): 10 Similarities and Differences

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