{"id":16884,"date":"2023-06-01T16:32:25","date_gmt":"2023-06-01T20:32:25","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/lessons-from-1999-market-mania\/"},"modified":"2023-06-01T16:32:26","modified_gmt":"2023-06-01T20:32:26","slug":"lessons-from-1999-market-mania","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=16884","title":{"rendered":"Lessons From 1999 Market Mania"},"content":{"rendered":"
\n

Market divergences can lead investors to chase high flying stocks at a peak.<\/em><\/p>\n

As we wrap up May, we find that key market indices are moving in opposite directions. While the NASDAQ Composite has made up much of its loss from 2022, many large segments of the U.S. stock market represented by benchmarks like the Dow Jones Industrial Average, NYSE Composite, S&P 400 Midcap Index, Russell 2000 Small Cap Index are actually at losses for 2023. This market anomaly is called, \u201cindex divergence.\u201d<\/p>\n

It\u2019s feeling a bit like 1999, I\u2019m hearing the same emotional calls by investors to only focus on \u201cNew Era\u201d investments (AI, ESG, Bitcoin
\n BTC
\n <\/fbs-ticker> etc.) and dump the old dinosaur companies. That period in time was one of the largest index divergences on record with the NASDAQ up 90%, and the NYSE Composite up modestly 9%. It was followed by the Dot.com bubble bust in the following year.<\/p>\n

<\/fbs-ad><\/p>\n

Investors have long relied on the Dow Jones Industrial Average and S&P 500 Index, believing them to be unbiased, accurate gauges of the overall stock market. Their trust was well earned by the father of the stock market average, Charles Dow. His ground-breaking research in the late 1800\u2019s proved that a well-constructed index could be an invaluable tool for investors to evaluate the current financial conditions and compare the market\u2019s recent performance to the past.<\/p>\n

However, when these trusted market benchmarks became popular investment products, they were placed in the hands of Wall Street\u2019s marketing machine. It operates on the maxim, \u201cSizzle Sells Securities.\u201d This might explain why the S&P 500 Index includes both shares of Google
\n GOOG
\n <\/fbs-ticker> and The Dow Jones Industrial Average having two credit card companies.<\/p>\n

The ABC\u2019s of modern stock market indices:<\/em><\/p>\n

Investors would be wise to better understand the facts & fallacies of modern financial statistics.<\/p>\n

1. Different Calculations Produce Various Results –<\/em><\/p>\n

It is difficult to make a representative index of the total stock market, because each methodology has advantages & weaknesses.<\/p>\n

The Dow Jones Industrial Average is price-weighted by buying 100 shares in each stock and effectively gives a higher weight to pricier stocks. This means that, in terms of percentage change Goldman Sachs, with a price of $331, is much more important than Intel
\n INTC
\n <\/fbs-ticker>, with a price of $30.<\/p>\n

The S&P 500 Index, on the other hand, is market cap weighted. This means the \u201cbig name\u201d stocks have a higher weighting than poor performing equities. It also tends to exacerbate the influence of \u201chot\u201d sectors and companies. During the tech bubble of the 1990s, it skewed toward tech; During the mortgage bubble in 2008, it favored financial companies.<\/p>\n

Today, approximately 50 companies comprise nearly 50% of its market capitalization. If you buy an S&P 500 index fund today, you own twice as much Apple
\n AAPL
\n <\/fbs-ticker> stock as you do the next largest component and nearly 400% more than the smallest companies in the index.<\/p>\n

It\u2019s easy to see the performance \u201cmirage\u201d of today\u2019s current environment by looking at the current S&P 500 with both weighted and unweight calculations. Very different performance results with the same exact group of companies over the same timeframe!<\/p>\n

Ironically, neither index truly represents how most investors manage their portfolios, and its opposite of the Wall Street doctrine of \u201cDiversify & Rebalance\u201d.<\/p>\n

2. Index Components are Always Changing – <\/em><\/p>\n

Since the 1980\u2019s, we\u2019ve seen the introduction of all kinds of financial products based on the passive investing theme, including exchange-traded index funds (ETFs).<\/p>\n

However, passive index investing doesn\u2019t mean static and has had an influence on inclusion and exclusion of stocks into major market benchmarks based on popularity. Of the 500 components of the S&P 500 in 1999, less than 41% were still in the index at the end of 2021. This high level of turnover might be expected in an index of small stocks or foreign stock markets, but this index is supposed to represent larger companies with long histories. Obviously, if a company goes bankrupt, is acquired, or otherwise fails to meet inclusion criteria, it must be removed from the index. But, what about the 64 companies that were removed from the index in the period I studied that are still in business?<\/p>\n

Consistency is important for historical comparisons. These stocks are ideal, because they have been publicly traded for a long time and generate billions of dollars in revenue. Sure, their stock-price performance has been poor overall. So? That mirrors the performance of many other publicly traded stocks in the market. Simply put, a consistent market benchmark should include the \u201cgood, bad & ugly\u201d of the entire stock market universe \u2014 not just Wall Street\u2019s current darlings.<\/p>\n

What Should Investors Do?<\/em><\/p>\n

\u00b7 Follow multiple benchmarks to determine overall market strength & trends.<\/p>\n

\u00b7 Study other market statistics to determine market health (NYSE & NASDAQ Advance Decline studies)<\/p>\n

\u00b7 Watch other markets for clues (bonds, commodities, foreign stocks)<\/p>\n

\u00b7 Pay attention to market seasonality \u2013 stock investing in the summertime can be very volatile.<\/p>\n

\u00b7 Don\u2019t be afraid to trim back on highflying stocks.<\/p>\n

It\u2019s not different this time!<\/em><\/p>\n

Although this market condition is unusual, it happened before and warrants caution.<\/p>\n

Before investors commit to new money because a handful of tech stocks are driving the S&P 500 higher, remember that divergences don\u2019t last forever; at some point all the horses need to be pulling in the same direction.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite directions. While the NASDAQ Composite has made up much of its loss from 2022, many large segments of the U.S. stock market represented by benchmarks like the […]<\/p>\n","protected":false},"author":1,"featured_media":16885,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-16884","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"\nLessons From 1999 Market Mania | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=16884\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lessons From 1999 Market Mania | iFintechWorld\" \/>\n<meta property=\"og:description\" content=\"Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite\" \/>\n<meta property=\"og:url\" content=\"https:\/\/ifintechworld.com\/?p=16884\" \/>\n<meta property=\"og:site_name\" content=\"iFintechWorld\" \/>\n<meta property=\"article:published_time\" content=\"2023-06-01T20:32:25+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-06-01T20:32:26+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/06\/1685651546_0x0.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"554\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"News Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"News Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/ifintechworld.com\/?p=16884#article\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=16884\"},\"author\":{\"name\":\"News Room\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\"},\"headline\":\"Lessons From 1999 Market Mania\",\"datePublished\":\"2023-06-01T20:32:25+00:00\",\"dateModified\":\"2023-06-01T20:32:26+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=16884\"},\"wordCount\":901,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"keywords\":[\"Featured\"],\"articleSection\":[\"Investing\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/ifintechworld.com\/?p=16884#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/ifintechworld.com\/?p=16884\",\"url\":\"https:\/\/ifintechworld.com\/?p=16884\",\"name\":\"Lessons From 1999 Market Mania | iFintechWorld\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/#website\"},\"datePublished\":\"2023-06-01T20:32:25+00:00\",\"dateModified\":\"2023-06-01T20:32:26+00:00\",\"description\":\"Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite\",\"breadcrumb\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=16884#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/ifintechworld.com\/?p=16884\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/ifintechworld.com\/?p=16884#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/ifintechworld.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Lessons From 1999 Market Mania\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/ifintechworld.com\/#website\",\"url\":\"https:\/\/ifintechworld.com\/\",\"name\":\"Repay Down\",\"description\":\"Latest Personal Finance News, Tips and Updates\",\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/ifintechworld.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/ifintechworld.com\/#organization\",\"name\":\"Repay Down\",\"url\":\"https:\/\/ifintechworld.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"width\":558,\"height\":90,\"caption\":\"Repay Down\"},\"image\":{\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\",\"name\":\"News Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"caption\":\"News Room\"},\"sameAs\":[\"https:\/\/ifintechworld.com\"],\"url\":\"https:\/\/ifintechworld.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Lessons From 1999 Market Mania | iFintechWorld","description":"Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/ifintechworld.com\/?p=16884","og_locale":"en_US","og_type":"article","og_title":"Lessons From 1999 Market Mania | iFintechWorld","og_description":"Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite","og_url":"https:\/\/ifintechworld.com\/?p=16884","og_site_name":"iFintechWorld","article_published_time":"2023-06-01T20:32:25+00:00","article_modified_time":"2023-06-01T20:32:26+00:00","og_image":[{"width":1200,"height":554,"url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/06\/1685651546_0x0.jpg","type":"image\/jpeg"}],"author":"News Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"News Room","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/ifintechworld.com\/?p=16884#article","isPartOf":{"@id":"https:\/\/ifintechworld.com\/?p=16884"},"author":{"name":"News Room","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61"},"headline":"Lessons From 1999 Market Mania","datePublished":"2023-06-01T20:32:25+00:00","dateModified":"2023-06-01T20:32:26+00:00","mainEntityOfPage":{"@id":"https:\/\/ifintechworld.com\/?p=16884"},"wordCount":901,"commentCount":0,"publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"keywords":["Featured"],"articleSection":["Investing"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/ifintechworld.com\/?p=16884#respond"]}]},{"@type":"WebPage","@id":"https:\/\/ifintechworld.com\/?p=16884","url":"https:\/\/ifintechworld.com\/?p=16884","name":"Lessons From 1999 Market Mania | iFintechWorld","isPartOf":{"@id":"https:\/\/ifintechworld.com\/#website"},"datePublished":"2023-06-01T20:32:25+00:00","dateModified":"2023-06-01T20:32:26+00:00","description":"Market divergences can lead investors to chase high flying stocks at a peak. As we wrap up May, we find that key market indices are moving in opposite","breadcrumb":{"@id":"https:\/\/ifintechworld.com\/?p=16884#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ifintechworld.com\/?p=16884"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/ifintechworld.com\/?p=16884#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/ifintechworld.com\/"},{"@type":"ListItem","position":2,"name":"Lessons From 1999 Market Mania"}]},{"@type":"WebSite","@id":"https:\/\/ifintechworld.com\/#website","url":"https:\/\/ifintechworld.com\/","name":"Repay Down","description":"Latest Personal Finance News, Tips and Updates","publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/ifintechworld.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/ifintechworld.com\/#organization","name":"Repay Down","url":"https:\/\/ifintechworld.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","width":558,"height":90,"caption":"Repay Down"},"image":{"@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61","name":"News Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","caption":"News Room"},"sameAs":["https:\/\/ifintechworld.com"],"url":"https:\/\/ifintechworld.com\/?author=1"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/16884","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16884"}],"version-history":[{"count":1,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/16884\/revisions"}],"predecessor-version":[{"id":16886,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/16884\/revisions\/16886"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/media\/16885"}],"wp:attachment":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16884"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16884"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16884"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}