Business Insider - Stock Market Crash: Expert Sees Dot-com Flashback, Meltdown Within a Year

Article by Akin Oyedele in Business Insider

Cast your mind back to the days in March when stocks were in freefall and everything around you, from the NBA to weekend plans, was suddenly postponed indefinitely. At the time, it might have been hard to believe that the market would be back at all-time highs by the summer. And yet, investors had cause to celebrate last month as the S&P 500 confirmed three new closing highs.  

The rally's unusual speed was not lost on anyone — not Wall Street strategists who scrambled to upgrade their year-end price forecasts, or young day-traders who rushed into trading. For Doug Ramsey, chief investment officer of The Leuthold Group, the "present-day market mania" is reminiscent of the dot-com era in ways that indicate the sell-off earlier this year is to be continued. 

His flashbacks are not merely occurring because technology stocks are all the rage again — although that's an important factor. He is also flagging that investors have once again imbibed a narrative of unrelenting gains.

In the late 1990s, investors were obsessed with tech companies that were 'obvious' beneficiaries of the internet boom. These days, the bulletproof narrative is not that certain tech companies will continue outperforming. It is that the Federal Reserve and Treasury will continue intervening to keep businesses afloat — including those with distressing balance sheets that would otherwise terminate them.

"In some ways we think the psychology is even more dangerous than 20 years ago," Ramsey said in a recent note.     

"We think this is relevant because the 2020 decline exhibits a strong resemblance to the 'incomplete' bear market of March 2000 - September 2001 — in that neither decline sufficiently deflated the extreme valuations of the preceding bull, and each was followed by an immediate ...

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