Recently, I've fielded a few calls from advisors asking for my thoughts on media coverage declaring that current market conditions are similar to those of the late 1990s. Their clients are worried about what might happen. Could we see a replay of 2000?
I have a great deal of sympathy for the worry. In fact, I first brought up the 1998 comparison back in 2016. At the time, I pointed out that if 2016 were 1998, we could see a serious market pullback in 2018. But—since I have been doing this for some time—I added that this pullback scenario would occur unless something happened. Of course, something did happen: the tax cuts and expanded government spending, which have bought us another year or so of expansion. That stimulus seems to be playing out, though. Once again, the conditions do look a great deal like 1998. As such, let’s see what our big four economic indicators can tell us.
Job Growth
If we look at a 10-year window, job growth has been steady—like that of the 1990s. If the comparison holds, however, we could see it drop sharply in late 2019.
Service Sector
Here, the comparison also holds, although I had to use the manufacturing index (rather than the nonmanufacturing index) due to a lack of earlier data. This index has outperformed the 1990s over the past 10 years, but it is now showing a decline that looks quite a bit like that of 2000.
Consumer Confidence
Changes in consumer confidence show the same trend. Again, there is considerable overlap between the late 1990s and now.