Look to the first dot-com bubble [Read this article on our website.]( [Smart Money Monday]  Aug 8, 2022 "Have We Reached the Bottom Yet?" Mania. Itâs hard to recognize when youâre in it. But thatâs what the Covid-era buying frenzy was. A mania. You might even call it the second coming of the dot-com bubble. Investors bid up profitless tech companies to nonsensical valuations. IPO volumes went through the roof. And JPEG files branded as ânon-fungible tokensâ sold for millions of dollars. This all culminated in a 108% rise in the stock market over 22 months. Now, after peaking at the start of the year, the market has dropped 13.3%. And people keep asking me, âHave we reached the bottom yet?â - The first dot-com bubble provides a useful roadmap for answering that question. As you might recall, the Nasdaq rose 320% from April 1997 to its peak in March 2000. Then it started tumbling. Over the next 18 months, the Nasdaq fell 72%, finally bottoming in September 2001. This go-round, the Nasdaq peaked in December 2021. And itâs dropped 22% since. For this to be a 1:1 parallel, the Nasdaq would have to fall another 50% and take another year to bottom. - But the Nasdaq isnât the best indicator for this bubble and bust. During the first dot-com bubble, the Nasdaqâs top 10 were all tech and telecommunications companies, like Microsoft (MSFT), Cisco Systems, Inc. (CSCO), and QUALCOMM Incorporated (QCOM). It also included a young, dreamy-eyed Yahoo!, Sun Microsystems (later gobbled up by Oracle), and WorldCom (which imploded in scandal). Tech still dominates the Nasdaqâs top 10. But most of these companies are mature now, like Microsoft, Apple Inc (AAPL), and Amazon (AMZN). It also includes consumer staples giant PepsiCo Inc (PEP) and retail behemoth Costco Wholesale Corp (COST). Pepsi and Costco arenât going anywhere. And at around 25â35 times forward earnings, theyâre not trading at absurd valuations. "Mauldin Economicsâ #1 Letter for 2022:" Learn how to secure steady 8%â13% dividends in your portfolio today. [Click here for the full details.]( - Thereâs a better gauge of how much froth is left in the market⦠The ARK Innovation ETF (ARKK). ARKK is a basket of hyper-growth, hyper-speculative stocks managed by long-time fund manager Cathie Wood. The fund reached an all-time high of $156 per share in February 2021. Now itâs trading for $50, or about 67% below its peak. The key here is that ARKK holds companies with a lot in common to the Nasdaqâs top 10 during the dot-com era. Many, if not all of these companies, trade at incredibly steep valuations, just like the Nasdaq in 1999. [Tesla (TSLA), which Iâve written about before,]( is ARKKâs top position. Itâs trading for over 100 times earnings per share. And thatâs after a 25% fall from its November 2021 high. This valuation still makes no sense. Cisco (CSCO) was in a similar position during the dot-com bubble. It peaked at over $70 per share in March 2000. At that point, it was trading for over 150 times its 1999 earnings per share. Or look at another present-day ARKK name, Roku (ROKU). This TV streaming company is ARKKâs number two position. At its peak of over $470 last July, Roku traded for well over 20 times sales and 400 times earnings per share. The dot-com parallel here is QUALCOMM. Around its peak in 2000, it was trading for over 200 times earnings. I could go on. Point is, valuations for the dot-com era Nasdaq looked just like the valuations for ARKK names at their peak. Even after the massive pullback, some of the ARKK names still look quite frothy. Tesla, again, is just one example. I wouldnât own ARKK here. However, the fund is a useful indicator for predicting the bottom of this bear market. Given its historic parallels to the dot-com era Nasdaq and its big drop over the past 18 months, Iâd say weâre closer to the bottom than the top. Thanks for reading, [Thompson Clark] âThompson Clark
Editor, Smart Money Monday Suggested Reading... [Why Buffettâs
Going âAll Inâ in 2022](
Â
[A Weird Recession]( [Thompson Clark]Thompson Clark is a small-cap expert and value-focused investor with nearly a decade of experience in financial publishing. Thompson graduated from the Goizueta Business School at Emory University in 2010 with a focus in finance and accounting. He lives in North Carolina. He is the editor of Mauldin Economicsâ free research service, [Smart Money Monday]( . Don't let friends miss this timely insightâ
share it with your network now. [Facebook]( [Twitter]( [Email]( Share Your Thoughts on This Article
[Post a Comment]( [Read important disclosures here.](
YOUR USE OF THESE MATERIALS IS SUBJECT TO THE TERMS OF THESE DISCLOSURES. Â This email was sent as part of your subscription to Smart Money Monday . [To update your email preferences click here.]( Mauldin Economics | [1417 Sadler Road, PMB 415 | Fernandina Beach, FL 32034](#)
Copyright © 2022 Mauldin Economics. All Rights Reserved.