Bloomberg Analysts Examine Current Market and Find Few Warning Signs of 2000 and 2007 Tops
Authored by Simon White, Bloomberg macro strategist
There is a growing cottage industry in comparing today's equity market to the bursting of the tech bubble in 2000 and the financial crisis beginning in 2007. But it is the differences that are more notable than the similarities.
While the 2000 and 2007 market peaks serve as benchmarks in many aspects, the dissimilarities exhibited in today's market make it inadequate to draw any comparisons：
1. Less corporate excess as the effects of rate hikes are dampening activity
Unlike the market peaks of 2000 and 2007, today's market conditions are characterized by less extreme corporate behavior. The 2000 and 2007 market peaks witnessed an extreme rise in corporate behavior, whereas the current market cycle saw similar behavior in 2021 and 2022, but those patterns have mostly subsided.
Corporate credit (bank loans and corporate bonds) grew more in 2000 and 2007 compared to today, except for 2020 due to pandemic loan assistance.
The household sector has become less vulnerable than it was during the periods of 2000 and 2007. This is partly due to the continued deleveraging following the Global Financial Crisis. Despite interest rates having increased rapidly, the debt-service ratios for loans and mortgages are lower now than they were in 2000 and 2007.
2. Liquidity and financial conditions are improving, not deteriorating
Most pointedly, liquidity is more supportive for stocks today. The growth in money compared to economic growth, known as excess liquidity, is the primary medium-term leading indicator for equities and other risky assets.
In 2000 and 2007 excess liquidity was not as supportive. While its level was relatively high, in 2007 it was moving sideways, and in 2000 it had been falling. This year it has been rising and, arguably, supporting the impressive recovery in stocks.
3. More supportive technicals
The Hindenburg Omen is a technical indicator that predicts stock market crashes by counting the number of new one-year highs. The chart for the Nasdaq Composite shows an elevated number of omens before the 2007 and 2000 tops, whereas today there are zero.
4. Sentiment and positioning are less extreme
The current stock market is less vulnerable compared to 2000 or 2007 based on various indicators such as breadth, positioning, and sentiment. The table provides running percentiles for these measures of stock-market sentiment and breadth.
The 2023 rally started with a few stocks but has since broadened out, making it more resilient compared to 2000 and 2007 rallies. Scores for various measures indicate that today's market is not as unrestrainedly bullish and invested as it was before previous market tops.
Tempered bullishness is thus the policy advised for this market, but if the same fate befalls it as happened in 2000 and 2007 - and anyone says "I told you so" - it'll be more a case of being lucky than smart.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo News Official Account
How do analysts evaluate the market?
18KFollowers
46Following
39KVisitors
Follow
71573195 : I know it’s more than just household debt but what about student loans? I’m not trying to find an excuse just seeing the other side.
Peanny : This written article tells us that this is worse than the last crash. Manipulation and Deception at its best. AI hides it well until it can’t. Truth is on it’s way. This crisis is well managed on life support. Articles like this is a part of dragging the facade out. We’ll revisit this article at the end of 2023. Snap shot this article for later reference as a case study. God is in control.
Peanny : It may be because this analyst isn’t searching adequately to find the warning signs .
Seek the truth and the analysis will show many warnings of 2000 and 2007.
One of the less-told stories in financial markets is how the U.K. stock market has become something of a barren wasteland. We’re all connected.
md jamal :