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What do today’s markets remind you of? In an early February tweet, Christine Benz, personal finance director of Morningstar, stated:

“All down markets are different and it’s early days, but this market pullback sure seems more like 2000 than 2008 or any of the more recent ones. (My int’l value fund has actually gained YTD!)”

The tweet turned into a string of comments from her followers.

John Stoj @StojBoj stated: “Whenever I think of how the market feels to me, I try to remind myself that my feelz were wrong in 2000 & 2008. Thankfully I was only negatively impacting my own retirement those times!”

Another user replied that it felt like “a combination of 2000 and 2008.  Most early stage tech valuations are absurd by any metric (2000), and lending markets are at risk (2008).  Large cap European value and growth present interesting risk-reward structure.”

Another chimed in: “I’m not there yet. There are similarities in what’s over-valued, being sold off, being bought instead. The scale seems less universal, though. In late 1999 & late 2007 I was anticipating trouble, but now… not unless the pandemic worsens.  Hope I’m right, prepared to be wrong.”

Benz told ThinkAdvisor in an email: “The macroeconomic conditions are different, especially with inflation at meaningful levels for the first time in several decades. But the rotation from growth to value, and the overvaluation of growth stocks coming into this period, do remind me of what we saw in 2000.

“It’s not an equal-opportunity, ‘no stocks are safe’ sell-off like we had during the great financial crisis. Growth stocks have borne the brunt of the losses and value stocks have held up relatively better, just as they did in that early-2000s period.”

Benz’s tweet prompted us to ask other investment experts about not only whether today’s markets echo past volatility, but what investors should do. Here are responses from Gary Shilling of A. Gary Shilling & Co., Liz Ann Sonders of Charles Schwab, Jim McDonald of Northern Trust Asset Management and Stephanie Link of Hightower:

Gary Shilling, A. Gary Shilling & Co.

Today's volatility and speculation in many security markets is reminiscent of the dot-com exuberance of the late 1990s. Back then, tech companies were promoted vigorously and their stocks bought enthusiastically, even if they had little substance. Most had no earnings. Some didn't even have revenues but only a business plan.

And investors urged them to burn through their IPO and borrowed money with promotions and other expenses that had little to do with developing saleable products.

Today, individual investors have stampeded into cryptocurrencies, movie theater chains and other rank speculations that produce nothing tangible or have huge chronic losses. SPACs, blank-check companies, are similar to the dot-com outfits of yesteryear.

They have no products, often not even a business plan, but are promoted with the prospect that they will merge with something viable and thereby become listed without regulatory scrutiny. And their sponsors can extract huge fees and their investment money if the SPAC fails, leaving the later investors with sizable if not total losses.

In this environment, prudent investors should avoid or short SPACs, which, despite recent sell-offs, probably have much further to drop.

Any long investments should be in defensive securities such as utility stocks and safe havens like Treasurys and the dollar against other major and developing-country currencies. I also recommend extraordinarily high cash holdings.

Liz Ann Sonders, Managing Director, Chief Investment Strategist, Charles Schwab & Co.

There are multiple historical comparisons to the present environment, but also unique aspects to this cycle that make those comparisons more difficult (not least being the pandemic).

So far, the stock market is behaving similarly to past periods when we were in the lead-in to an initial Fed rate hike (fairly strong performance, but more volatility as the initial rate hike date approached). Also similar to history, as bond yields have risen and the yield curve has flattened, many of the higher-multiple, longer duration segments of the stock market have been disproportionately weak relative to lower-multiple segments of the market.

Speculative froth over the past year or so is reminiscent of the late-1990s era of heightened speculation; the difference this time being that most of the froth in the past year was concentrated in nontraditional segments of the market, such as non-profitable tech, meme stocks, SPACs, crypto, and heavily shorted stocks.

We've been suggesting more of a factor-based approach to stock picking than a style index- or sector-based approach. Factor leadership has been more consistent than either sector or style index leadership. We have also been suggesting a portfolio- or volatility-based rebalancing approach (to take advantage of swings to add low and trim high) as opposed to a more traditional calendar-based approach to rebalancing.

Jim McDonald, Chief Investment Strategist, Northern Trust Asset Management

The global pandemic is unique in many respects, but the historical period with some parallels is post WW-II. Demand was booming, and the supply chain took time to meet demand as industry pivoted from “guns to butter.”

The current period has been very profitable for corporations, and strong earnings growth has underpinned excellent stock market returns. This supports our Global Policy Model overweight to developed market equities, which we favor over emerging markets.

The biggest risk we’re concerned about is persistent inflation, which would justify a more hawkish Federal Reserve and higher interest rates. This concern supports our overweight to natural resources and our underweight to investment grade fixed income.

Finally, our overweight to high yield bonds is supported by the strong earnings outlook and the potential for higher interest rates — as high yield has outperformed investment grade bonds in all four of the recent rate hike cycles and even outperformed equities in two of those cycles.

Stephanie Link, Chief Investment Strategist and Portfolio Manager, Hightower

There is no time like this from the past because we’ve never seen unprecedented amounts of fiscal/monetary policy get unwound.

Diversification is always key. A barbell approach of value, cyclicals and reopen sectors within equities and quality growth — namely tech and health care.

The former group, because the economy is growing above trend and inflation will remain high. The latter because the total addressable market opportunities are significant especially given the pullback.

Watch the yield curve — it has been flattening and signals the Fed is behind the curve and also that it will mean they have to be more aggressive and risk the economic expansion.


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