Crossmark Global Investments CEO Bob Doll sees similarities between today's elevated U.S. equity market, which has been fueled by massive tech stocks tied to AI technology, and the 1999-2000 dot-com boom and eventual bust.
"Despite steep losses in internet high-flyers and others, equity investors did not retreat from the overall equity market but rather rotated into lagging areas. Investors are belatedly realizing that they have overpaid for a future that may not be as rosy as the consensus was expecting," he wrote in his weekly commentary, posted Monday.
"The future may very well favor some of today's expensive companies, but their stock prices had overshot, similar to what occurred during/after the bubble 26 years ago. Some star companies of that era survived and went on to generate massive growth in earnings, and their stock prices, eventually, fully recovered, although it took 15 years for the Nasdaq to surpass its 2000 peak, and many companies went bust," wrote Doll, who also serves as chief investment officer.
"The equity environment is starting to look somewhat like 1999/2000: Previously frothy stocks have hit a wall, while overall risk appetite has held up because the macro environment is still good," he said.
Moreover, inflation remains sticky and high compared with the previous two decades and global growth is improving modestly, which will bolster the floor under inflation, Doll added.
The rotation away from U.S. equities has gained momentum, he noted.
Non-U.S. equity markets have materially outpaced the U.S. over the past year but American indexes remain close to record highs, "underscoring that equity investors are not outright bearish on the U.S., nor stocks in general," he wrote.
"In common-currency terms, U.S. equities have massively underperformed non-U.S. stocks since the end of 2024 because of both lagging U.S. equity performance and the downtrend in the U.S. dollar," Doll added.
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