A 1990’s Market Flashback

by: , Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Last week served up another round of positive U.S. economic data. Consumer confidence is strong throughout, increasing to a 17-year high. Surveys of current business conditions remain elevated, and in some cases, suggest increasing momentum in the months ahead. Productivity increased. Congress made progress on tax reform.

There’s no doubt the U.S. economy is on solid footing. The effects of which are reflected in corporate earnings – currently running 7% higher than this time last year. However, with economic indicators all elevated, is this exuberance with a risk of an impending reversal?

We believe this is the beginning of a late-cycle growth spurt, driven by improving CapEx, rising productivity, increased consumer spending, and technological advances. Interestingly, it seems quite reminiscent of the late 1990s, which were characterized by much of the same, including low inflation.

Some key structural similarities include the influence of technology and globalization on prices, but today, we have an even more intertwined global supply chain.

Another notable difference is the structure of the technology sector. First, tech companies generate earnings due to the rapid expansion of the digital economy. And second, while tech stocks decoupled from underlying fundamentals in the ’90s, today’s values are much more reasonable (Figure 1).

Figure 1: Compared to the Late ’90s Tech Bubble, These Stocks Are Fairly Valued Relative to the Market

Tech Valuations vs. S&P 500

Sources: Thomson Reuters Datastream, New York Life Investments, 9/30/17.

So, we stay constructive on equities supported by low interest rates, momentum, economic activity, and the potential for tax reform. With elevated pricing, consider using an active manager who can identify strong market trends.

Watch this Week’s Market Minute

The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.

All investments are subject to market risk, including possible loss of principal.

Active investing is an investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.

Active management typically charges higher fees. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

Capital expenditure (CapEx) are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm.

The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist, and Portfolio Manager with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group

Full Bio

Leave a Reply

Your e-mail address will not be published.