The AI-driven stock market’s growth has fueled comparisons to the dot-com era crash of 2000. Jim Paulsen isn’t worried, mostly because of the way the market is currently split.
The former chief investment strategist of The Leuthold Group hasn’t been shy about discussing potential cracks he sees in the market. But as he recently laid out in a post on his Substack, he sees the divide between “old era” and “new era” stocks shielding it from the type of risk it saw during the late 90s.
“New” basically refers to tech, while “old” encapsulates the other nine sectors in the S&P 500.
“The performance bifurcation between new and old era stocks has probably never been as extreme as it is today,” he wrote. “However, a lower correlation between new and old era stock prices compared to their relationship during the 1990s may be keeping overall contemporary stock market risk much lower than it was during the latter stages of the dotcom run.”
He added: “Today, because old era stocks provide a much larger stabilizing force than they did in the 1990s, investors are incented to diversify more broadly than they did during the 1990s,” he noted.
Paulsen is far from the only investing pro so analyze how the current AI boom stacks up against the dot-com bust. Goldman Sachs analysts recently said that while stock market breadth is at its lowest level since 2000, it doesn’t yet rival the depths of the pre-crisis era.
“Boring ‘old era stocks’ may ultimately substantially mitigate the investment carnage to the overall stock market once the music finally stops for new era stocks,” Paulsen added.
