Market Insights

The past year has seen dramatic changes in investor expectations. We started worrying about inflation, survived a banking crisis and witnessed a tech boom in AI stocks. Another interest-rate panic followed in late summer, but it soon morphed into a surprising bullish reversal in early November. Stocks have moved almost straight up since.

This raises an important question: Has the market ever seen anything like this before? The surprising answer could be “yes.” It may resemble a key moment in the mid-1990s as one of the greatest bull runs of all time took shape. This article will consider at least five potential similarities with that previous time. (Remembering that past performance is never a guarantee of future results.)

New Tech Boom

The technology boom of the 1990s mostly resulted from the spread of the Internet and personal computers. Two of the biggest beneficiaries were router maker Cisco Systems (CSCO) and Microsoft (MSFT), which supplied the Windows Operating System.

This time, Artificial Intelligence (AI) is the trend. The spread of machine learning and large-language models has already launched a new group of stocks like Nvidia (NVDA), Super Micro Computers (SMCI) and ServiceNow (NOW). MSFT has become the world’s most valuable company again, this time thanks to cloud computing and its relationship with OpenAI. Meta Platforms (META) is also using the technology to improve ad targeting.

Researchers at Goldman Sachs forecast in December that widespread adoption of AI could boost productivity growth by 1.5 percent and add $7 trillion to the global economy. That could mean AI’s benefit goes beyond just the companies providing the technology. It could lift corporate profits and the entire economy in general.

Strong Employment Trends

The strong job market is another similarity. Payrolls grew about 2.5 percent annually in the 1990s and unemployment fell almost by half. Workers struggled for the next 15-20 years with a “jobless recovery,” financial crisis and Great Recession. However, conditions have improved since the pandemic.

For example, the number of people seeking unemployment benefits for the first time (initial jobless claims) are back around 200,000 per week. That’s about 100,000 fewer than levels seen in in the late 1990s or early 2000s — even with 10-20 percent more people in the labor force. The unemployment rate (3.4-3.7 percent) is also lower than levels seen in the late 1990s or early 2000s. Jobs are so plentiful that employers still have about 9 million unfilled positions, according to “JOLTS” data from the Labor Department.

Economic Soft Landing

The Federal Reserve raises interest rates to slow inflation, which can trigger recessions. Perhaps the most notorious example was the sharp “double dip” contraction of the early 1980s.

Something different happened in 1994 and 1995: Fed Chairman Alan Greenspan hiked interest rates to slow inflation, and no recession followed. This became known as a “soft landing” — the best possible possible outcome for the economy.

Fast forward 29 years and history may be repeating. This time, Jerome Powell raised interest rates from effectively zero percent to over 5 percent. Most forecasters said it would cause a recession, but the opposite happened. Gross domestic product (GDP) accelerated in the second half of 2023 as consumer spending and investment grew. Economists have responded by dropping recession calls and raising growth estimates.

Has another “soft landing” occurred?

Demographics: Millennials and Their Parents

Demographics were another factor in the bull market of the 1990s. The large baby boom generation entered their prime age for earnings and savings. (Their peak birth years were 1957-1960, making them 35-38 in 1995.) As adults, they plowed money into 401(k) plans and college savings, helping fuel the bull market of the late 1990s.

Millennials could now find themselves in a similar spot. Their biggest birth years were 1990 and 1991, so they’re now about 34. Given the strong employment trends cited above, will they follow a similar process of saving and investing?

Long Term Uptrend?

Some investors view the market in multiyear, or “secular” bull and bear phases. For example, the S&P 500 enjoyed a broad advance from 1949 until roughly 1968. It then languished in a bear market until 1982, and then climbed for the next 18 years. Another secular bear market followed as the dotcom bubble deflated. A new bull market began in May 2013 ended when the S&P 500 surpassed its previous high.

If this history is a guide, secular bull markets last 18-20 years. That could mean we’re only about halfway through longer-term move to the upside.

These monthly charts of the S&P 500 put the cycles in perspective. Notice how a trend line formed along the lows of 1982, 1987 and 1990. The index held that line in early 1995 before accelerating into the bull run of the late 1990s.

The current uptrend ran along the lows of 2011 and 2018. Prices briefly fell below the line in during the unprecedented coronavirus crash, but quickly rebounded. Notice how the lows in October 2022 an October 2023 formed near the same trend line. Does it resemble the mid-1990s?

Pessimism Was Running High

Several famous investors have noticed that markets pass through phases of negativity and exuberance. They’ve bought during times of fear and sold at times of greed. The famed investor John Templeton described this process by saying that bull markets “are born on pessimism, grow on skepticism, mature on optimism and die of euphoria.”

This concept may apply to the 1990s and current time if we use survey data from the American Association of Individual Investors. In 1992 and 1994, there were moments that only 22 percent of respondents were “bullish.” The proportion rose with the broader market and stayed mostly above 30 percent for the next decade.

The post-Covid crash in sentiment has been even more dramatic. AAII’s bullish reading spent most of 2022 and 2023 under 30 percent, at one point bottoming at 16 percent. There could be at least two takeaways from the recent period of gloom.

First, nervous investors may not be fully invested yet. (Other data, like money market balances and margin lending suggest that risk appetite is still relatively low.) Will they gradually come back to stocks as confidence returns?

Second, another long-term period of optimism may follow as bears are proven wrong. Americans have been negative for years after witnessing the Global Financial Crisis, Great Recession, government shutdowns, trade wars, coronavirus, inflation and interest-rate hikes. But two recent reports may show a dramatic shift has already begun.

AAII’s survey on November 9 showed the biggest increase in bullish sentiment since 2010. The number calling themselves bearish fell the most since 2003. Then on January 19, the University of Michigan observed that consumer sentiment had its biggest two-month improvement since 1991. Combined with the fading recession calls, does this suggest the tide has already turned?

Nothing New on Wall Street?

In conclusion, the famous trader Jesse Livermore said that “there is nothing new on Wall Street.” He added that “whatever happened in the stock market today has happened before and will happen again.”

This shouldn’t be taken literally because history doesn’t repeat exactly. And it clearly doesn’t repeat for individual stocks. Things do change and past performance should never be considered a guarantee of future results.

Nonetheless, investors can still learn from bigger processes, circumstances and cycles. This may be especially true in the current environment, given its economic, demographic and technological similarities with a key moment in the 1990s.