Having been an investor through 1999 and 2007, 2023 is giving me some major deja vu. I’m not sure which is the better precedent, but the feeling of having been here before is hard to shake. The current AI frenzy feels like the dotcom hysteria. Stock valuations are about as elevated. The inflation scare, rising rates backdrop and the banking fracas remind me of 2007 and the infamous subprime slime. It’s even tempting to liken last spring’s SVB debacle to 2008’s Bear Stearns.
Simplistic analogies can only be pushed so far. But they’re fun, and they do convey a fair image of where I suspect we may be in this market cycle. If it’s like 1999, stock prices would top out next March. If it’s like 2007, they would top out in October. Next year, 2024, would either be 2000 or 2008. That those would be an even 24 and 16 years from their antecedents may not be entirely accidental. A 8 year cycle would also be consistent with the important low of 2016.
Another issue is that the June CPI may turn out to have been the low for the year. Remember the headline figures are year over year changes; this automatically cancels out seasonality, but introduces an average six month lag. Due to the base effect of the leveling off of last year’s increases in the second half, the year over year comparisons get tougher from here. We could easily see figures rising from the 3% growth reported in June. Stock prices responded negatively to CPI increases last year, and they could be a stiff headwind in this year’s second half.
The bottom line … stocks could continue to zig-zag their way higher for months to come, and still not be out of the bear market woods. Given current levels, new highs are far from out of the question. Whether subsequent lows breach last year’s October lows is neither yet knowable nor even that important … the totality of the evidence is that a substantial decline is highly likely, even if from what levels will only be known in hindsight.
The gist of it is that if 2023=1999+2007, then 2024=2000+2008. It may not make good arithmetic, but it may nevertheless make sense.