As the S&P 500 index of the New York Stock Exchange continues to reach new maximums, the concerns of some analysts are increasing that you are closer to a correction in the style of the Puntocom.
Amid the closure of some of the commercial negotiations led by the United States, for example, with Japan and with the European Union (EU), and the entrance to the stage of definitions of others such as the case of China, and together with the swings of the probable destination of the head of the Fed, Jerome Powell, although investors and analysts do not lose footprint to all these events, they do not stop paying attention to the levels achieved by the levels achieved by Wall Street. It happens that As the reference index, S&P 500, marks new maximums reborn the perception of getting closer to a correction as it happened with the Puntocom boom in the late ’90s, mainly due, mainly, for several similarities with the current situation.
On this they recently investigated James Van Geelen’s Citrini Research analysts who warned that High prices and complacency of investors, such as the CBOE volatility index below 15, increase the possibility of market correction. It should be noted that this volatility index, known as VIX, goes up when investors become nervous, but has been consistently remained below the long -term average of 19.5 since the end of last June, and in a bearish trend since it briefly exceeded 50 at the beginning of April. But to this is added the fact that August and September are usually seasonally weak months for sharesPoint out the people of Citrini, according to Marketwacht Bárbara Kollmeyer.
Stock market: similarities between today and what was seen in 1998
Regarding a market drop as the one lived with the Puntocom at the end of the nineties, from Citrini they highlighted surprising recent similarities between the current stock market and what was seen during 1998. They explain that the 1998 setback, seen in the summer (boreal) and that it dropped almost 20% to the S&P 500, was seen by some as a precursor of the largest correction that would come later. According to them, the depth and duration of the 1998 correction coincide almost exactly with the correction of 2025, as well as the recovery period towards new historical maximums, in addition to other underlying problems.
Kollmeyer points out that the amplitude of the market, measured by the percentage of members of the S&P 500 above their respective 200 -day mobile averages when the market is reaching new maximums, has been at the weakest levels since the end of 1998. Hence,, If the market continues to rise with a weak and decreasing amplitude, that could mark the beginning of the bubble phase of this secular upward marketthey warn in Citrini, where they recalled that when the market reached its maximum point in March 2000, only 35% of the S&P 500 companies were above their respective 200 -day averages.
It should be noted that, although the S&P 500 has been advancing towards new maximums this year, along with the Nasdaq, as the main technology companies dominate the appetite of investors, the Dow Jones Industrial has not yet reached any maximum in the year. Even so, Citrini experts see that the stock market can have more concerns than climbing before this happens, pointing out How margin debt accumulation in relation to actions remains quite benign.
In this regard, Kollmeyer comments on a Citrini graph that shows how the increase in marginal debt in early 2000 and mid -2007 stood out compared to the profits of the S&P 500. From the beginning of 1999 to the beginning of 2000, the marginal debt grew more than 75%, while the S&P 500 increased less than 25%. Under the optics of the people of Citrini, the key point is that during the final stages of an upward market, that is, those that lead to an important peak of the market, the margin debt tends to grow rapidly (and much faster than the increase in the market) as investors become more confident and, therefore, more leverage, which indicates an irrational exuberance.
The Trump-Powell factor
On the recent confrontation between Trump and Powell, Citrini considers that it marks the end of the reigning calm. Now they anticipate a transition from Trump’s failed public pressure campaign to a more strategic effort to generate macroeconomic conditions that justify feat cuts. With the cooling of inflation, the de -escalation of the commercial war and the growing rise of moderate positions in the Fed, They hope that the door will open to a flexibility of monetary policy. This emerging political-moneary convergence feels the basis for a gradual decrease in long-term interest rates.
Now, already about the end of summer (boreal), both the economy and the market are at a crossroads, for the people of Citrini. Should we expect a reacting of the economy and the end of the favorable disinflation process of two and a half years?; As for the stock market, Do you see a macroeconomic catalyst that triggers an expected correction?; either Will the upward markets follow thanks to secular bullish narratives such as the continuous investment in capital in artificial intelligence (AI), deregulation, a more favorable fiscal policy and the adoption of cryptocurrencies, in a macroeconomic context still favorable? “In this last scenario, a solid economy and companies that benefit from secular trends despite the high valuations, we begin to receive indications of a possible repetition of the Puntocom bubble which we alluded to last January,” they said.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
