Investors handicapping the new market year see similarities to 2010's recovery and 1999's risk binge

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The year 2021 begins as an apparent hybrid of 2010 (early-cycle recovery), 1999 (late-cycle risk binge) and the early-1940s.

One can imagine the equivalent of bloggers and tweeters at the time noting with alarm that Wall Street appeared alarmingly out of touch with the realities on the ground, as we've heard since March 2020.The main resemblance to 2010 comes in the market action itself. A powerful upside reversal from a panicked sell-off in March followed by an uncommonly broad and persistent rally that for months investors treated as fragile, premature or misguided.

The overwhelming central-bank and fiscal responses are similar in effect. In each case, the Federal Reserve's actions were novel and generated awe. It was a mandated shutdown, a flash recession, with a quick fear-driven market collapse halted by enormous, proactive policy measures and left the aggregate consumer balance sheet in good shape, with spending holding up and more than $1 trillion in additional savings.

The atmospherics are what have the bubble-callers exercised about 1999 similarities. The rush of IPOs that surge in price, the stampede of newer smartphone investors who chase price and ignore traditional valuation, the entry of Tesla into the S&P 500 in a way that evokes Yahoo's inclusion in late-1999.

 

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