This is the S&P 500’s chart in 1999.
*Read the entire history of the U.S. stock market here.
The really interesting trend throughout all of 1999 was the narrow breadth. Large cap, blue chip DOW stocks did not go up at all while tech stocks soared. Sometimes large cap Dow stocks and tech stocks moved inversely! The logic at the time was “new economy tech companies will kill old economy companies”. Such extremely narrow breadth was only seen in 1999 and never before at other bull market peaks.
However, narrow breadth is not a good indicator of bull market tops. It is a very poor timing indicator. Breadth can be “weak” in the middle of a bull market, after which the S&P 500 will rally for years (e.g. SPX 2012).
January 7, 1999: The Senate started Bill Clinton’s impeachment trial. The stock market completely ignored this.
Throughout January 1999, Brazil’s stock market kept crashing because investors feared that Brazil would default on its debt and devalue its currency. These fears only pushed the S&P down for 1-2 days, but had no impact on the S&P in the medium term.
February 12, 1999: The Senate acquitted Bill Clinton. Once again, the stock market had no reaction to this news at all.
In late-March 1999, our model predicted that a small correction would happen. That small correction actually began in mid-July 1999. The S&P fell 13% and fell far below the price at which our model said “SELL”.
June 30, 1999: The Fed hiked interest rates for the first time in the rate hike cycle. This was 2 weeks before the 13% correction of July 19 – October 18 began.
July 13, 1999: Latin America started to have problems. Argentina’s stock market crashed. But this did not cause the S&P’s July 19 – October 18 correction. While the S&P went down, the US Dollar went down as well (which means that there was no “safety haven” play in the world while the S&P fell).
There was no fundamental news/reason for the July 19 – October 18 correction. In addition, there was no particular reason why the S&P bottomed on October 18. Q3 1999 earnings season (released in October 1999) did push the S&P higher however. But the S&P doesn’t always go up on earnings season.
October 22, 1999: The White House made a deal with Congress on how to repeal Glass-Steagall, a law that for 70 years divided commercial and investment banking. The repeal of Glass-Steagall was good for banks in the long run, so bank stocks rallied strongly on this news.
The Y2K fears were pure BS. On October 29 1999, even Intel said that Y2k would not be a problem.
November 8, 1999: U.S. Justice Department sued Microsoft for anti-trust violations. The Justice Department wanted to break up Microsoft because it was a “monopoly”. The S&P had no reaction to this news at all.
The divergence between tech stocks and old economy Dow stocks became exceptionally obvious in December 1999. It was no longer just a matter of NASDAQ outperforming the Dow Jones Industrial Average. On some days in December the NASDAQ soared while the Dow fell!