Now the current market environment is really starting to feel like 1999/2000.
In July, I argued that while U.S. equity markets in 2020 weren't yet seeing a Dot.com bubble-like speculative frenzy, the parallels between the two environments were growing. Aside from high valuations for select high-growth tech companies, we were now seeing a giant increase in retail trading activity, triple-digit first-day gains for hot IPOs and large moves higher in stocks on account of news that really doesn't warrant such gains.
Today, we not only have higher valuations than what existed in early July -- for some favored names, much higher valuations -- but a lot of the aforementioned activity has intensified. Especially the large stock moves on questionable news catalysts.
Just this week, we've seen:
- BigCommerce (BIGC) , a Shopify (SHOP) rival that's both smaller and growing more slowly than Shopify, rise 83% over two trading days after announcing its platform will support Instagram's in-app checkout feature. That BigCommerce mentioned its partnership with Instagram in its IPO filing, and that Shopify has an Instagram partnership as well, apparently was of little consequence.
- Walmart (WMT) rise 4.6% in Thursday trading (adding about $17 billion to its market cap) following news that it's teaming with Microsoft (MSFT) on a bid for TikTok's operations in the U.S., Canada, Australia and New Zealand, in a deal that would apparently give Walmart a minority stake. Not known at this moment: How large Walmart's stake would be if the Microsoft bid wins; how successful it would be at creating e-commerce synergies with TikTok; and what the effects would be of splitting TikTok's operations in four markets from the rest of the business.
- Automotive hardware/software provider Veoneer (VNE) rise 17.3% on Thursday on news that it will provide software for Qualcomm's (QCOM) Snapdragon Ride ADAS/autonomous driving platform. The gains come even though Qualcomm hasn't yet announced any design wins with major automakers for Snapdragon Ride, which faces competition from Intel's (INTC) Mobileye unit and Nvidia (NVDA) and isn't expected to go into production vehicles until 2024.
In recent weeks, we've also seen Tesla (TSLA) and Apple (AAPL) register big gains thanks in part to investor enthusiasm for their planned stock splits. Though one could argue a split can be a slight positive for a company's capital structure to the extent that it makes its stock accessible to more potential investors, it (needless to say) does nothing for an existing investor's ownership stake.
And as a result, big moves higher in response to split announcements are arguably a pretty good tell-tale sign of an overheated market filled with overeager retail buyers. They definitely were in 1999/2000, as the likes of Amazon and Qualcomm shot higher on split announcements.
Also happening in recent weeks: The tech IPO floodgates have gone from being slightly ajar to wide open. Airbnb, Palantir, Snowflake, Unity Software, Asana, Sumo Logic, JFrog, Corsair Gaming, DoorDash...some of these companies have stronger sales pitches for growth tech investors than others, but they all want to go public right now, and it's hard to blame them.
Of course, the fact that things are now feeling more 1999/2000-like doesn't necessarily mean that the party is on the verge of ending. Quite often, the froth doesn't start coming out of a market like this one until bad news starts emerging that makes savvier investors start questioning the growth narratives that led them to justify paying nosebleed valuations for favored names. And by and large, the earnings reports delivered by high-growth, large-cap, tech companies in July and August -- including the ones delivered this week -- haven't led this to happen.
But while it's hard to predict when we'll reach a turning point, this market is just about every day providing fresh arguments for treading carefully, given what history tells us about how parties like this tend to end.