Nasdaq reaches record: is the comparison with the dotcom bubble correct?

The Nasdaq 100 reached another record high yesterday. This time, Meta was one of the big drivers. The share rose more than 10 percent after the launch of AI assistant Muse. Bitcoin is also participating. The price has now risen to around 87,000 dollars.

Nevertheless, the same comparison continues to recur with every new trade fair record. Doesn't this look suspiciously like the dotcom bubble? There is something to be said for this in terms of price movements. The development of the current market shows striking similarities with those of the late 1990s.

But under the bonnet, the picture looks very different.

During the internet craze of 1999 and 2000, investors paid huge sums for companies that barely made a profit. The internet would change the world. That was true in the end. Only the valuations were way too far ahead of the actual profits.

Today we see something different. The profits of large stock exchange companies are growing rapidly and profit margins are still improving. According to the chart, the price-to-earnings ratio is currently more than three times lower than during the dot-com bubble peak.

That does not mean that stocks are cheap or that there is no bubble formation anywhere. But I find a one-to-one comparison with 1999-2000 difficult to defend for the time being.

A second interesting signal comes from the bond market. Credit spreads are historically low. That is the extra interest that companies have to pay on top of the interest of the US government.

For example, if the government pays 3 percent and a company pays 4 percent, the credit spread is 1 percentage point. The higher that spread, the more compensation investors demand for the risk that a company cannot repay its debts.

For US high yield bonds, that spread is currently around 2.68 percentage points, the lowest level since 2007. That might sound ominous because of that comparison, but the market's message is clear: credit investors currently charge relatively little compensation for default risk.

At the same time, investor sentiment remains remarkably negative. That while the S&P 500 and Nasdaq 100 rise and Bitcoin moves towards $87,000.

It is precisely this pessimism that can provide extra fuel. If cautiously positioned investors still enter, new buying pressure arises. For the time being, a continuation of the bull market therefore remains my main scenario, despite the high real and nominal interest rates.

The main positive wildcard remains the oil price. Should an agreement between the United States and Iran cause a rapid decline in oil, inflationary pressure will decrease and the pressure on bond yields may also decrease.

That would be exactly the combination that risky investments are currently waiting for.