Blog - Investing Notes

June 2, 2005 – What Bubble?

While comparing sector performance via the behaviors of various Standard and Poor's Depository Receipts (SPDRs), we noticed that there really was not much of a bubble among stocks overall a few years ago. How much of a bubble was there?

The following chart tracks from 1/4/99 through 6/1/05 the performance (daily closing prices) of seven SPDRs: Financial Select Sector SPDR (XLF); Consumer Staples Select Sector SPDR (XLP); Energy Select Sector SPDR (XLE); Technology Select Sector SPDR (XLK); Utilities Select Sector SPDR (XLU); and, Health Care Select Sector SPDR (XLV). It shows that the behaviors of all except one sector have been rationally "uberant" - with the exception of Energy, even dull.

The next chart simplifies the comparison of technology with the other sectors by combining the six non-technology sectors and scaling so that the resulting technology and non-technology indices equal one as of the beginning of 1999.

The next chart depicts the volatility and current level of all seven indices by scaling them to one as of the beginning of 1999 and showing the relative lows, highs and current values of each as of 6/1/05. It shows that six out of seven (all except technology) are fairly near their highs. It also emphasizes the dramatic recent run-up in Energy.

The following table shows when each SPDR reached its minimum and maximum closes since the beginning of 1999. It shows that three of the seven indices bottomed on the same day in October 2002 and four of the seven have reached all-time high closes in 2005.

In summary, the Internet Bubble is very much a technology stock phenomenon. Except for Energy recently, investing in other sectors over the past few years has been unexciting. Most sectors are trading near all-time highs.

For related research, see Blog Synthesis: Valuation Based on Fundamentals.