The '1999 Indicator' to Watch This Year

The fine line between boom and bubble... It's all about expectations... Comparing the dot-com era with today's AI buzz... Divining market direction... The latest from our Investment Advisory team... Trading 'seasonality windows'...

If this year really is like 1999, you'll want to understand one thing...

As regular readers know, I (Corey McLaughlin) have noted that the U.S. benchmark S&P 500 Index recently put together a pair of back-to-back years with 20% annual returns for the first time since 1997 and 1998.

Anytime we see a historical reference to those days, it gets my attention. We're looking at a historical precedent from the rollicking-upside portion of the dot-com bubble... And in this context, it would mean 2025 could be like 1999.

The good news? Stocks gained just about another 20% in 1999. The bad news? The party ended in 2000, which began three consecutive, brutal down years for stocks and a more than 50% drop from peak to bottom in the S&P 500.

After that, hindsight revealed that the '90s tech boom had turned into a bubble... Many speculative dot-com names went out of business. And while survivors like Amazon did pretty well in the longer run, they got crushed when the bubble burst, too.

The lesson: Yes, people made money on the way up, or at least paper gains... But those who didn't get caught up in the euphoria could have "made" more by avoiding losses through proper risk management, and understanding what a boom-turned-into-bubble looks like.

This, of course, is a notable development for folks like us who like to consider history when thinking about what might happen in the future. As we begin 2025, we're thinking about what might be next for the current two-year-plus bull market.

Will this year be more like 1999... or 2000? Or, heck, could it be more like 1995 instead, with many more years of new highs ahead?

Today, I want to share one "indicator" – which is really an idea to understand – courtesy of our Director of Research Matt Weinschenk...

You see, the dot-com bubble 'carries clear parallels to today'...

That's what Matt wrote on Friday in his first This Week on Wall Street edition of 2025. That bubble was fueled by expectations about what the Internet and various companies linked to it could do. As Matt wrote...

The market was rallying on exuberance over new technology that promised to boost productivity across the economy. And, in hindsight, the Internet was a truly transformative technology that created trillions of dollars in wealth.

But over that five-year run, the Internet didn't create any true profits. The economy did pretty well, and corporate earnings rose, but the market far outpaced earnings growth...

This time around, artificial intelligence – and expectations about what the technology might do for various businesses – has clearly been a core driver of higher stock prices.

It's certainly true for the biggest AI company around, Nvidia (NVDA), and the six other "magnificent" mega-cap tech companies, which make up about a third of the weighting in the S&P 500 and nearly 50% of the weighting of the Nasdaq Composite Index... a scale of concentration rarely seen in stock market history.

However, as Matt continued in Friday's This Week on Wall Street...

But like with the Internet in the run-up to the dot-com bubble, AI hasn't created much in the way of profits. Aside from Nvidia (NVDA) and a few other hardware providers, this new technology is mostly just creating additional costs as the Big Tech firms spend to build computing capacity and train models.

The AI boom kicked off with the release of ChatGPT in November 2022. Since then, the S&P 500 is up 44%... while corporate earnings are only up 6.5%. (Sound familiar?)

I think AI is very, very real. The financial markets are running ahead of the reality. The question is whether AI is overhyped... or if the market is just forward-looking.

So far, the path of stocks compared with earnings looks even more daunting than during the dot-com era...

So, if you're looking to divine the overall direction of stocks this year, you want to look at the big narrative that has been fueling this bull run so far. That's AI... and the expectations around it. And as a guide, you might want to consider how the dot-com boom days played out.

From 1995 through 1999, stocks saw not just two big years in a row, but five, if you're willing to count the 19.5% return in 1999 as a big year. Then they corrected 10% in 2000, and they lost another 13% and 23% in 2001 and 2002, respectively. As Matt wrote...

The question is this... With AI as an analogy to the Internet, are we in 1995 or 1999? Are we set for another few big years? Or are we due for a correction? Perhaps the lack of earnings suggests we're earlier in the cycle.

The only way the market tacks on another big year is if the advances in AI support the rising excitement about the technology.

That's to say, AI doesn't need to generate true profits just yet. But if the technological advances continue at a rate that keeps excitement rising, the market can follow a similar path to the 1990s for a while.

This is the reality of today's market, Matt said...

If you want to divine the overall direction of stocks, your best bet is to understand the AI boom and the technology behind it.

Candidly, I don't know if that gets us any closer to a proper prediction about where we go from here. The path of AI may be as hard to predict as that of the stock market. But you can't ignore AI's current power to drive stocks.

And so, we won't. It'll be front of mind this year as we hash out bullish and bearish arguments for the overall market.

Moving on, to the latest from our Investment Advisory team...

On Friday, lead editor Whitney Tilson and our Stansberry's Investment Advisory team published the latest issue for their subscribers. Whitney and the team put together a fascinating issue, as usual. It features a brand-new recommendation that they are bullish on at the intersection of energy, AI needs, and an overlooked yet critical ingredient that allows those fancy data centers you've been hearing about to run efficiently.

That's water... and in the desert, no less.

Whitney and the team also took a look at the energy market from a broad view...

Scott Bessent, Trump's nominee for Treasury secretary, has mapped out a "3-3-3" plan for the U.S. economy. It includes cutting the budget deficit to just 3% of GDP, increasing real GDP growth to 3%, and increasing U.S. oil production by 3 million barrels per day ("bpd").

It's that last figure that has caused some concern with energy investors...

The only place in the world that could potentially add 3 million bpd in oil production is the Permian Basin in West Texas. Today, it produces 6 million bpd – more than double what it produced in 2017.

Investors are worried that increased supply would lower oil prices. Fortunately, that's not how the oil market works...

The Permian is made up of independent oil producers, ranging from small private enterprises to corporate giants like ExxonMobil (XOM). These drillers are pure profit-seeking companies. In other words, the government doesn't tell them what to do – the market does.

Indeed, after a brief postelection sell-off, crude oil is actually now trading higher than prior to the election. Investors will realize that government wishes won't force companies to act against their own self-interests. Oil companies want higher oil prices more than they want higher production, and that's not going to change.

The issue also features an update on the latest developments in next-generation weight-loss drugs, including the results and market reaction to a trial involving an Investment Advisory model-portfolio holding.

Again, existing Investment Advisory subscribers and Stansberry Alliance members can find the latest issue here... And if you don't already have access to our flagship publication, click here for more information on how you can get started today.

One more thing...

You heard from our friends at TradeSmith over the weekend in our Masters Series... about the "seasonality" patterns and cycles they've uncovered in stocks, indexes, even currencies and commodities...

If you want to learn more, don't forget... on Wednesday, TradeSmith CEO Keith Kaplan is hosting a free online event where he'll unveil a powerful new trading strategy based on these seasonality windows. You'll want to hear the details...

Keith has been able to pinpoint the path of the bull market over the past two years, and heading into 2025 he has a new prediction. "[It] will be one of the best years ever for investors," he says.

But he's not predicting a bull market, AI boom, or anything of the kind. He has a much more peculiar prediction to share... and it has to do with a simple, elegant strategy that he says could be the key to beating the market by more than double in 2025.

Click here for more details.

New 52-week highs (as of 1/3/25): Alpha Architect 1-3 Month Box Fund (BOXX), CyberArk Software (CYBR), and GEO Group (GEO).

In today's mail, a note for Stansberry's Investment Advisory lead editor Whitney Tilson, who is running for mayor of New York City... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Just want to pass on a good luck and successful run for Mayor of New York. The city certainly needs a person of Whitney's caliber to right that ship." – Stansberry Alliance member Paul S.

All the best,

Corey McLaughlin
Baltimore, Maryland
January 6, 2025