Stock Market Analysis: Bespoke Analysts Warn of Potential Pullback Amid Record Highs

The Nasdaq 100 index, heavily focused on technology, surged more than 3%, reaching its all-time high for the first time since March 2000. This event, reminiscent of the dot-com era over two decades ago, which culminated in the bursting of the bubble and preceded a recession, was highlighted by analysts at Bespoke Investment Group. They acknowledged the unease associated with March 2000, a period etched in investors’ memories due to the dot-com bubble’s eventual collapse.

Bespoke’s analysts, in a note to clients reviewed by MarketWatch on Friday, pointed out that despite the Nasdaq 100 not witnessing a gain of over 3% to close at all-time highs since March 2000, there were 32 instances of such occurrences throughout the 1990s, leading up to the peak of the dot-com bubble. A chart accompanying their analysis illustrated the frequency of these instances during that period.

In a similar vein, Thursday marked the first time since March 2000 that the S&P 500 experienced a one-day advance of at least 2% to close at a new all-time high, according to Bespoke’s compiled data. The chart displayed green dots representing 21 instances since 1952 when the large-cap benchmark index achieved a gain of over 2% and closed at an all-time high. The analysis revealed that although the market traded heavily in the following day, week, and month, the index managed an average gain of approximately 2% over the subsequent three months.

Nasdaq Composite fluctuates
Nasdaq Composite fluctuates, S&P 500 and Dow are poised for substantial weekly gains.

Since hitting rock bottom in October, the U.S. stock market has been steadily climbing, driven largely by mega-cap technology stocks. Investors have been closely analyzing quarterly results, which highlight a growing obsession with AI and a flourishing economy. Yet, there’s still uncertainty about predicting when the Federal Reserve will execute its first interest-rate cut in 2024.

Thursday saw a significant surge across three key stock indexes, fueled by Nvidia Corp.’s strong revenue forecast, resulting in the largest one-day increase in market capitalization for any U.S. company. The Dow Jones Industrial Average and S&P 500 reached new record closing highs, while the Nasdaq Composite narrowly missed its first record close since 2021, according to FactSet data.

Amidst this optimism, market participants are debating whether the recent rush into the “Magnificent Seven” over the past year mirrors the dot-com bubble of 1999. During that era, stocks soared on a wave of technology hype, only to suffer a sharp decline when the bubble burst in 2000, leading to a mild recession the following year.

Data reveals U.S. stocks mostly end higher
Data reveals U.S. stocks mostly end higher, highlighting market resilience and momentum.

Bespoke analysts, while refraining from explicitly drawing a direct parallel between the dot-com bubble and the current stock rally, highlighted the historical pattern and the seasonality factor. They pointed out that the next month is typically “one of the weakest periods of the year.” This observation led them to suggest that the U.S. stock market might be due for a pullback in the coming weeks.

As the week came to a close, U.S. stocks mostly ended higher on Friday, with the Nasdaq Composite fluctuating between gains and losses. Meanwhile, the S&P 500 and the Dow industrials were poised for another round of record highs and their most substantial weekly gains of the year, according to Trade Algo data.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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