Even though some analysts have compared the 2020 rebound in equities to the 1930 ‘hope’ phase following the 1929 crash, we think that this year has shown some strong similarities with the 1998 / 1999 period. While tech stocks were experiencing strong inflows in the second half of the 1990s amid the dotcom boom, the Nasdaq suddenly fell by 30% in the third quarter of 1998, before starting to reach new highs and surging by over 120% in the following year.
This year, tech companies’ valuations are up 90% in the past 9 months following their dip reached on March 23rd and seem on their way to reach new all-time highs in the coming months as another 3 trillion USD is expected to reach markets in the coming year.
This chart shows some strong co-movements between the Nasdaq index in 1996 – 2000 and in August 2018 – December 2020. Even though market sentiment has reached extreme levels, the bullish trend in mega-cap growth stocks could easily continue for another year amid the surge in liquidity coming from central banks to support the economies and finance the high costs of lockdowns.
Is it really a good time to short equities?