To borrow a phrase from Prince, in 2018 investors are partying like it’s 1999.
Prince released his song about celebrating before the millennium in October 1982. So he did not realize that stocks would enjoy a big surge in 1999 — that was the year the NASDAQ soared 85.6% — before collapsing in 2000.
For those who don’t believe they can wait another 10 years for the next market peak, this is a great time to sell.
Before getting into that, let’s do a quick review of the periodic financial and market collapses that capitalism is heir to. After a decade of inflation, the Fed raised short-term rates to as high as 20% in 1979 and 1980 after inflation had spiked to double-digit rates — which led to a painful recession and a big drop in inflationary expectations.
Next came the Reagan tax cuts, deregulation — particularly of the Savings & Loan industry, the rise of junk-bond-fueled takeovers, and too much borrowing to finance commercial real estate followed by financial and stock market collapses in 1988 and 1992.
In the 1990s we enjoyed the dot-com bubble that peaked in 1999 and suffered through the bursting of the bubble followed by a further economic decline in 2001 and 2002 in the wake of 9/11 and the collapse of Enron.
And it was a mere decade ago that the entire global financial system came close to freezing up in the wake of the subprime mortgage securitization collapse before the U.S. government stepped in with its $23.7 trillion worth of bailouts and guarantees that set the stage for the last eight years of steady — if un-thrilling — economic and stock market recovery.
To wit, the S&P 500 has risen since its March 2009 of 700 at a 16.7% compound annual rate. That compares very favorably to the long-run average 7% rate of return on stocks.