It’s 25 years on from the peak of the dot-com bubble, and tech stocks are plunging. That’s a worrying coincidence, but this selloff doesn’t have to go the same way as its historical predecessor.
The Nasdaq Composite is down 13% since its record high on Dec. 16. The index had its worst day on Monday since 2022 as investors fled the so-called Magnificent Seven group of megacap stocks and those tied to the wider artificial-intelligence trade However, the signs point to a dampening of the market euphoria around President Donald Trump’s reelection and AI hype rather than a broader crisis. The S&P 500 was recently trading at 21 times its expected earnings over the next 12 months, above its 10-year average of 18 times. Consecutive gains of more than 20% over the past two years led by a small group of stocks have left the market vulnerable to a sudden pullback—more indicative of a correction than the prolonged decline of a bear market.
There is still time for interest-rate cuts, planned tax reductions, and a potential softening of the trade-war rhetoric to bring calm to the markets. History since the dot-com bust is on the side of a brief dip—of the 18 times since 2000 that the S&P 500 has breached its 200-day moving average during a selloff it has bounced back quickly 11 times, according to Ritholtz Wealth Management
The Nasdaq Composite is down 13% since its record high on Dec. 16. The index had its worst day on Monday since 2022 as investors fled the so-called Magnificent Seven group of megacap stocks and those tied to the wider artificial-intelligence trade However, the signs point to a dampening of the market euphoria around President Donald Trump’s reelection and AI hype rather than a broader crisis. The S&P 500 was recently trading at 21 times its expected earnings over the next 12 months, above its 10-year average of 18 times. Consecutive gains of more than 20% over the past two years led by a small group of stocks have left the market vulnerable to a sudden pullback—more indicative of a correction than the prolonged decline of a bear market.
There is still time for interest-rate cuts, planned tax reductions, and a potential softening of the trade-war rhetoric to bring calm to the markets. History since the dot-com bust is on the side of a brief dip—of the 18 times since 2000 that the S&P 500 has breached its 200-day moving average during a selloff it has bounced back quickly 11 times, according to Ritholtz Wealth Management
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