Last week’s turbulent stock market activity was reminiscent of the dark days of 2000, when the dot-com bubble burst, said economist and strategist David Rosenberg. With leading technology companies plunging and investors fleeing to safety, the widely followed market bear sees similarities between two eras marked by overheated investor sentiment and an overvalued market. “The massive daily swings reflect a manic market that is going off the rails,” the head of Rosenberg Research wrote in his daily market report on Friday. “The development is strongly reminiscent of what happened immediately after the Nasdaq crashed from the bubble highs of March 2000.” As the week drew to a close, the carnage in the technology sector was palpable: The Nasdaq Composite, which tracks most of the high-flying industry leaders, lost nearly 3.7% for the week. Tech giant Nvidia plunged more than 8%, while Microsoft fell 3.6% and Alphabet posted a 4% loss. Some of that spilled over into the other indexes: The S&P 500 posted its worst week since April, falling nearly 2%, while the Dow Jones Industrial Average posted a modest gain. But investor sentiment surveys showed investors largely unfazed by the recent bout of volatility. Both retail and institutional participants were largely optimistic that the market would continue its remarkable winning streak into 2024. “I have to say that I get that classic Alfred E. Neuman ‘What, I should be worried?’ feeling when I look at what’s happening in the stock market and the reasons for this relentless exuberance,” Rosenberg said. In this week’s American Association of Individual Investors survey, bullish sentiment hit 52.7%, just a touch off its 12-month high, while bearish sentiment rose slightly but was only 23.4%. Similarly, Investors Intelligence’s survey of newsletter writers found the spread between bulls and bears hit its widest in three years. Such extremes would often be considered contrarian selling points, but that wasn’t the case until this week. Recent developments have also been marked by a return of long-shunned small caps, a group that gained about 1.7% this week, according to the Russell 2000 Index, extending an impressive rally that began in late spring. Here, too, Rosenberg sees signs of trouble for a trade he doesn’t believe will last. “The shift toward value and small caps has indeed been unprecedented, and over such a short period of time,” he wrote. “But from my perspective, there is nothing fundamental or rational here, and I see this shift as more of a trade than a trend — probably more of a short squeeze on these previously unloved stocks.” From a bigger picture perspective, Rosenberg is concerned that the huge appetite for stocks is leading to a retirement crisis, as older investors are heavily invested in stocks. “My biggest concern is that no one has rebalanced their portfolio in this last big leg of the stock market rally — it’s as if diversification has become a 15-letter dirty word,” he said.
