Fifteen years ago today the Nasdaq Composite closed at at 4798, only 2.5% below the current levels:
The above is a one month chart from that time period. Check out the the intra-day volatility. Fourteen trading days had ranges greater than 3%! At the time, traders (like CC and myself) were loving the trading opportunities created by the movement. But in hindsight, March 2000’s volatility was indicative of the pop of the dotcom bubble that was about to happen.
By year end the Nasdaq Composite was down 50% from the March 15th high (March shaded below):
I know we’ve already gone over this. And I know there’s already been a line of pundits trying to make comparisons between now and then, or explain why its different this time. I am not gonna get into that. Frankly I see few useful comparisons. My take-away is a bit more intimate. (Hot take coming…)
On this morning in 2000 I was boarding a plane for Dallas, Texas to get married. The previous day I had cleaned out my trading portfolio at the $100 million long/short hedge fund I worked at as I would be gone for two and half weeks in Asia. I can’t lie to you, I was anxious about leaving for that long as the volatility that had taken hold in the market was exactly what I was trained to trade in, so a small (editor’s note: ridiculous) part of me saw nothing other than lost trading profits.
While on vacation in Indonesia, the only access I had to stock quotes was The Herald Tribune (my StarTac didn’t even get a signal), which unfortunately went to print an hour before the 4pm New York close of the markets, which was excruciating as much of the action happened in the last hour of the day. I would be hard-pressed to tell you that I would have killed it, although If I remember correctly our fund had one of its best months to date, as we were nimble and had the ability to turn on a dime. I returned thinking that I had missed a very trade-able pullback. April proved that to be wrong, as the Nasdaq plummeted 30% in the first two weeks of April, before making back half those losses, but you know how the rest of the year goes.
Since the top in 2000 we have had one other period of volatility, and that was obviously the summer/fall of 2008 which also ultimately culminated in a 50% peak to draw-down of the S&P500 when it was all said and done.
So 15 years on, with the Nasdaq all the way back near 5000, and the S&P just a couple percent from the recent all time highs, what’s different this time is that there is little to no volatility in equities. I find this a bit curious given the extreme volatility we have seen in the last year in historically less volatile risk assets like commodities, currencies and bonds, and would be surprised if we don’t ultimately see a spill-over, and soon.,
Tops are a process, and they are usually marked by the sort of volatility that makes investors/traders reconsider their every move, like going on your honeymoon, and we are not there yet as I am off tomorrow for a week to celebrate my 15 year anniversary!