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Bull market rivals ’90s at half valuation as demand broadens

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(Bloomberg) — The American equity rally that just turned 5 years old is starting to match the 1990s Internet bubble when it comes to its speed. That’s where most of the resemblances end.

Unlike then, when technology stocks drew 85 percent of the cash and surged four times as much as anything else, investors today are spreading their money around, sending $2 billion or more to exchange-traded funds tracking everything from drugmakers to oil drillers, data compiled by Bloomberg and Morningstar Inc. show. While gains are extending to almost every industry, they’ve only been enough to push valuations to close to half the level when the bubble popped in 2000.

Those are some of the reasons investors such as Stephen Wood at Russell Investments expect the advance to keep going. While pockets of the market such as biotechnology shares and social-network stocks show signs of froth in 2014, for most American companies, growth in earnings has kept pace with the increase in stock prices.

“We’re coming up on the fifth anniversary of a pretty brisk upward trend,” Wood, New York-based chief market strategist at Russell, said in a March 5 interview. His firm oversees more than $256 billion. “There’s a dynamic, growth- oriented impulse to these market highs. The broad-based nature of the rally is certainly different than what it was 15 years ago.”

Market resilience

U.S. stocks advanced last week, with the Standard & Poor’s Poor’s 500 Index climbing 1 percent to a record 1,878.04 after investors brushed aside tensions in Ukraine and American employers added 175,000 jobs in February, more than economists forecast. Since the S&P 500 fell to a three-month low on Feb. 3 amid turmoil in emerging markets such as Turkey and Argentina, the index has rallied 7.8 percent, restoring $1.8 trillion to U.S. equity prices.

The S&P 500 was little changed at 1,877.17 at 9:52 a.m. in New York.

Resilience like that has generated total returns for U.S. investors of 25 percent a year since the bull market began on March 9, 2009. The rally compares with 27 percent annually during the last five years of the technology bubble, a period when the S&P 500 gained 233 percent and $9.3 trillion of equity value was created, data compiled by Bloomberg show. ‘Huge gains’

“We see huge gains from the bottom,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, which manages about $125 billion, said by phone on March 7. “What strikes me the most is that much of the recovery was at a time that you couldn’t find many bulls around. That really sets it apart” from the 1990s, he said.

Today’s advance is more widespread. An average of 381 S&P 500 stocks have increased during each of the last five years, compared with 311 in the 1990s, data compiled by Bloomberg show. All but 40 companies were up in 2013, the most in at least two decades. At the record last week, 77 stocks hit a 52-week high, compared with 27 at the market’s peak in 2000.

The S&P 500 Equal Weight Index, which strips out biases related to market value, has added more than 29 percent a year in the current run. That’s almost twice as much as in the last half of the Internet bubble, data compiled by Bloomberg show.

Technology surge

As a result, the gap between the market’s leaders and laggards is smaller. During the stretch that lasted from March 1995 to March 2000, computer and software makers surged 754 percent, compared with 200 percent in the next-best industry, banks. By contrast, since March 2009, consumer-discretionary shares have jumped 324 percent, banks are up 259 percent, and industrial companies have risen 243 percent. The group with the smallest increase, phone companies, is up 68 percent.

“Confidence drives the bull,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, said by phone on March 5. His firm oversees about $360 billion. “Most people started this recovery with absolutely no confidence in the future. What we see is a return to health.”

Eighteen companies in the S&P 500 have advanced more than 1,000 percent since 2009. Among the top five, none is a technology maker. General Growth Properties Inc., a real estate investment trust, Regeneron Pharmaceuticals Inc., producer of eye drug Eylea, hotel franchiser Wyndham Worldwide Corp., CBS Corp. and insurer Genworth Financial Inc. all generated bigger returns than the next best performer, Inc.