The American equity rally that just turned 5 years old is starting to match the 1990s Internet bubble when it comes to its speed.
That’s where most of the resemblances end.
Unlike then, when technology stocks drew 85 percent of the cash and surged four times as much as anything else, investors today are spreading their money around, sending $2 billion or more to exchange-traded funds tracking everything from drugmakers to oil drillers, data compiled by Bloomberg and Morningstar Inc. show. While gains are extending to almost every industry, they’ve only been enough to push valuations to close to half the level when the bubble popped in 2000.
Those are some of the reasons investors such as Stephen Wood at Russell Investments expect the advance to keep going. While pockets of the market such as biotechnology shares and social-network stocks show signs of froth in 2014, for most American companies, growth in earnings has kept pace with the increase in stock prices.
“We’re coming up on the fifth anniversary of a pretty brisk upward trend,” Wood, New York-based chief market strategist at Russell, said in a March 5 interview. His firm oversees more than $256 billion. “There’s a dynamic, growth- oriented impulse to these market highs. The broad-based nature of the rally is certainly different than what it was 15 years ago.”
Since the S&P 500 fell to a three-month low on Feb. 3 amid turmoil in emerging markets such as Turkey and Argentina, the index has rallied 7.8 percent, restoring $1.8 trillion to U.S. equity prices.
Resilience like that has generated total returns for U.S. investors of 25 percent a year since the bull market began on March 9, 2009. The rally compares with 27 percent annually during the last five years of the technology bubble, a period when the S&P 500 gained 233 percent and $9.3 trillion of equity value was created, data compiled by Bloomberg show.
“We see huge gains from the bottom,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, which manages about $125 billion, said by phone on March 7. “What strikes me the most is that much of the recovery was at a time that you couldn’t find many bulls around. That really sets it apart” from the 1990s, he said.