S&P 500: This high beta melting has echoes from 1999

In our recent article, “,“We reflect whether the stock market is entering a fusion phase, where investors driven by extreme speculative behavior and the hopes of exponential yields favor volatile actions with high betas.

To be clear, we do not know if we are in a fusion phase. The market could simply show a short -term appetite due to risk. It is important to note that, even if this is a phase of melting, we do not know if we are close to the end or if it still has many profits ahead.

What we do know is that, from the minimum of April, the attitude of the market towards the most risky and most speculative activities has become much more intense. We also know that this phase will finally end. I could end with a wide collapse of the market and a high beta bust, similar to the era of dot-com. Alternatively, broader shares indices can be reasonably well as the lowest beta, the most value oriented actions compensate for losses of the most speculative assets.

To help us better evaluate the situation, we reviewed the Dot-Com member in 1999 by clues, since there are some surprising similarities between then and today.

Fiesta as is 1999

They say, 2000-00, party
UPS, out of time
So tonight I’m going to celebrate as if it were 1999
Yes, yes

Prince’s lyrics, written in 1982, describes a party that ends in the millennium shift. Although he did not write about actions, the letter turned out to be insightful, since the stock market party ended shortly after the year in 2000.

The economic benefits, the potential gains and the exaggeration of the Internet became increasingly evident for investors in the second half of the 1990s. From 1995 to its peak at the beginning of 2000, it rose in more than 200%. It was not a straight line. In the summer and autumn of 1998, the failure of the long -term capital coverage fund and the Russian breach caused the market to decrease by approximately 20%.

From the low point of October 8, 1998 to its peak in March 2000, the market experienced a meteoric rebound, winning almost 70%.

Returns for life in a year

Although the yields of the indices and some of the largest and most established technological actions were impressive, what stood out was the sudden change in the feeling of the market. After the recession in 1998, the most risky and speculative actions with the highest betas became leaders. Consider the following one -year percentage profits for 1999:

• Qualcomm (Nasdaq 🙂 +2,619%
• ONE COMMERCIAL (CMRC) +2707%
• Broadvision (BVSN) +1,494%
• Metricom (mcom) +1,416%

Investors changed a change in October 1998 and invested money in shares with “dot.com” in their names or investments on the Internet. Some investors who took profits, realizing that the party was becoming long in the tooth, obtained great profits. However, most of the investors who chase the leaders stayed in the game too long and finally paid a loved price.

Of the four examples listed above, Commerce One and Metricom declared themselves in bankruptcy shortly after Dotcom’s bust. Broadvision was eliminated since it could not meet the reports of reports. Qualcomm is the only company among which is still in operation.

However, as the graph illustrates below, the price of the shares took 20 years to return to its record as of January 2020. Even Microsoft (Nasdaq :), the largest stock for market capitalization in 1999, and one that also saw tremendous yields at the end of the 1990s, spent the next 13 years before recovering its maximum records.

1999 – Beta persecution

From 1995 to September 1998, the market experienced a wide rally with a healthy participation of all kinds of actions. The graph below breaks the percentage yields during that period by deciles of stock beta. As shown, the returns were relatively comparable to each other. Interestingly, the actions with the lowest and highest betas were below the average.

After the 20% decrease in the summer and beginning of autumn of 1998, the market tone changed significantly. The following graph shows that investors went to the highest beta actions while avoiding the lowest beta shares. 10% of the shares in the highest decile increased by more than 100% on average. Meanwhile, the lowest 20% of Beta shares decreased slightly.

Another way to illustrate the reducing differential marked is through the relationship of a lower beta decile index than the tallest decilo. As we share below, the proportion was changed little from 1995 to September 1998.

By March 2000, a year and a half after the merger began, the proportion had been reduced by half, since high beta actions had significantly exceeded low beta stocks. It is worth adding that the relationship was invested significantly after March 2000. While a story for another article, that provides a clue on how to change assets when a merger approaches at midnight.

The current of the UP current: Beta low against high

Having witnessed the melting of 1999 and the subsequent melting of high stock, there is something disturbingly familiar about the current environment. Similar to 1998, the market recently experienced a strong decrease after a period with a strong upward trend. The culprit of the reduction was the imposition of rates. From mid -February to the beginning of April, the S&P 500 fell by almost 15%. The decline and recovery occurred quickly.

However, what has become clear in the rebound is that the market leaders of 2023 and 2024, including many of the magnificent seven and some other shares of great capitalization with strong gains and income growth, are no longer in control. The speculative actions involved in AI and cryptocurrencies seem to be in favor.

While some of these companies are profitable, many are losing money or are very indebted. Anyway, investors are captivated by their possible profits and income growth. Even more likely, they rush to pursue impressive profits and the hope of coming.

2025 Derret analysis

The previous graphics of the 1990s were based on monthly data from Kenneth French and Dartmouth. Because the period we are studying now is much shorter and the monthly data we use previously delayed in a month, instead we trust the daily prices of the High Beta ETF research (NYSE 🙂 and invest S&P 500 The ETF volatility (NYSE :).

We understand that using different data sources compared to the experience of the 1990s is not ideal. Even so, we are sure that the two ETFs and their daily data provide a precise representation of the current environment.

The following graph draws the relative performance of the ETF beta high and low (SPHB and SPLV) and the growth of great capitalization (). It shows that the Great capitalization ETF has surpassed the market since 2023, while ETF beta low and high generally have a lower yield. However, from the market under April 8, 2025, Beta Alta has surpassed the market in more than 20%. In addition, it exceeded high growth High growth ETF by 13% and low beta ETF in almost 40%.

The search for high beta and low beta avoidance began in that April minimum.

Some high Beta Altos Flyers

We highlight some Beta Altas actions and their profits since April 8, 2025, to illustrate how the new speculative leadership of the market is seen.

In addition, the ETF of innovation ARK (NYSE 🙂 has many high beta actions that have had an exceptionally performance in recent months. Namely, Arkk has defeated S&P 500 in 59.70% since April 8, 2025.

His five main holdings (Tesla (Nasdaq :), Global coinbase (Nasdaq :), Roku (Nasdaq :), Roblox (Nyse :), Robinhood Markets (Nasdaq :), Crispr Therapeutics (Nasdaq 🙂 and Tempus ai (Nasdaq :)), what counts for almost 50% of their assets, they are significantly shown significantly in the shapets in the SHATH below.

Summary

Is this different period of the Beta Beta and Fall Beta cycle during the Era of the Points-COM? Only time will say it. While there are some similarities, there are key differences. On the one hand, the Internet is now mature, and AI is feeding much of the negotiation of actions. The information moves much faster today, and the patterns of trade and feeling are controlled in real time and act on.

From an economic point of view, our economic growth is slower today than 25 years ago. The Fed is doing QT and remains unusually high currently. In 1998, in 3% to help long -term capital creditors and relieve the fears of Russia’s breach. However, they were raised gradually during 1999.

In addition, to prepare against a possible technological failure when the year 2000 arrived, they added a substantial liquidity to the banking system. This liquidity probably fed the high beta market rally at the end of 1999.

Despite the similarities and differences between the two periods, we can be sure that the behavior of investors has become clearly more speculative since the bass of April. The most urgent questions are now how much more this risks take this damage and how much damage it will finally end.

Original publication