I don't think equity markets have yet reached Dot.com bubble levels of euphoria, nosebleed valuations and speculative buying.
But having gone through the Dot.com bubble and learned some hard lessons along the way, the current environment definitely feels closer to 1999-2000 than anything seen since then. In addition to very high valuations for select growth stocks, there are a few other reasons why the mood feels similar.
The way in which stocks are frequently jumping on news that (upon closer scrutiny) really doesn't warrant such gains is one clear similarity. We've seen it happen often with drug developers sharing any kind of remotely-positive news about COVID-19 vaccine work, as well as with retail/momentum favorites such as electric vehicle developer Nikola (NKLA) , which is worth over $20 billion and isn't expected to start recording sales until late 2021.
And this week, we've seen Walmart (WMT) jump on reports that it's launching an Amazon Prime rival that really doesn't look like one, and we've seen Twitter (TWTR) jump thanks to a job listing that (without specifying what the platform will do or when it might launch) points to work on a subscription platform.
The frenzy surrounding select IPOs is another way in which the mood feels a little 1999-like. Millennial-beloved insurance provider Lemonade (LMND) , which is up 166% from its $29 IPO price and (in spite of posting a $108.5 million net loss last year) and trades for 63 times its 2019 revenue, is a good case in point. So is cloud communications API provider/Twilio rival Agora (API) , which is up 154% from its $20 IPO price and trades for 88 times its 2019 revenue.
Of course, it's also impossible to ignore how -- just as legions of retail investors opened up online brokerage accounts from 1998 to 2000 -- the last few months have seen a major increase in retail brokerage account openings. And whether on Robinhood or older brokerages such as Schwab and E-Trade, many of the brand-new accounts are clearly being used to put money down on high-growth/high-multiple tech stocks.
Robintrack, a website that monitors Robinhood trading activity, states that the number of accounts holding Tesla (TSLA) , Zoom (ZM) and Amazon.com (AMZN) have each more than doubled since the start of the year, with Tesla and Amazon now each having more than 300,000 account holders.
And on Thursday, market-maker Citadel Securities said that retail investors now account for about a fifth of trading activity on average (and as much as 25% on peak days), up from 10% in 2019. On top of its direct effect on equity prices for favored retail names, such a jump in retail activity can also have a major indirect effect, to the extent that retail-fueled momentum leads professional traders to jump on board the train, at least until they see signs of the wheels falling off.
For the moment at least, it doesn't look as if the wheels are about to fall off for tech companies, as recent earnings reports and pre-announcements from the likes of Micron (MU) , SAP (SAP) and Xilinx (XLNX) show. And as a result, this party might last for a while longer.
But if we start seeing any real signs of weakening demand -- perhaps due to prolonged macro weakness driving greater layoffs and spending cuts at many non-tech companies -- the party could end with a thud. Maybe not as massive of a thud as we saw in 2000 and 2001, but a big one nonetheless.
