Wall Street Says Stay With Stocks Despite Late ‘90s Dot-Com Vibe

Geoffrey Morgan

(Bloomberg) — Rising bond yields and soaring oil prices have many Wall Street pros looking back a few decades to the volatile period before the dot-com crash. But that doesn’t mean they’re encouraging investors to dump their stocks.

The exhortation to stay in the market comes at a tricky time for equities. The yield on 10-year US Treasuries is near 5%, and the long bond is around the highest it’s been since 2007. Traders are increasingly betting that the Federal Reserve will raise interest rates at its meeting this week to combat persistent inflation, as West Texas Intermediate crude trades at around $100 a barrel and the war in Iran keeps energy prices elevated. Plus, September is a seasonally weak month for stocks.

Taken together, this would appear to be a time to sell. Which probably explains why the S&P 500 Index has barely moved since the start of June after rising 11% in the first five months of 2026 and putting up double-digit percentage gains in each of the preceding three years. Of course, that being said, stocks jumped on Friday even as inflation data seemingly increased the likelihood that the Fed will hike soon, as traders bought the dip after four sessions in the red. 

“The stock market is acting like a duck,” said Drew Pettit, chief investment strategist at Roundhill Investments. “It’s calm on the surface, but it’s just paddling like the dickens underneath.”

The comparison to the late 1990s is apt, considering tech stocks survived a Fed rate-hike cycle and a corresponding jump in Treasury yields for a few years before unraveling into a brutal wipeout, as strategists at Bank of America Corp. and CIBC Capital Markets noted last week. The implication being that this market can, too.

“The greater risk is missing the last leg of a bull market where you generate these outsized returns,” said Michael Rosen, chief investment officer at Angeles Investment Advisors. “I’m not suggesting this is the end of a bull market, but if it were then missing out and then having to get back in is really an impossible task.”

So far, investors seem to agree. Equity investor sentiment has slipped only slightly, falling into a neutral range, whereas sentiment in the bond market has fallen to its lowest level since 2022, according to Ned Davis Research. 

However, that doesn’t mean all is calm in the stock market. While the Cboe Volatility Index is signaling low stress, the spread between index-level and single-stock volatility recently climbed to the highest in over a decade.

The next several weeks will be defined by “choppiness, messiness,” Pettit said. Investors who have been dumping cyclical and speculative stocks while rotating into growth sectors and names with higher earnings revisions should stay patient until third-quarter results start hitting in October, he said.

It’s a widely shared view on Wall Street. 

Powering Through the Fed

“Growth and tech can power through a tightening cycle,” said Chris Harvey, head of equity and portfolio strategy at CIBC Capital Markets, noting that the technology-heavy Nasdaq 100 Index climbed 59% from June 1999 through May 2000, when the Fed was raising rates. But financials and value stocks fell, posting “weak relative and absolute returns,” he said. 

Similarly, Bank of America analysts think “powerful growth narratives and bubble-like markets” can overcome major macro and rates headwinds, according to a note to clients on Wednesday.

Of course, that’s not to say the macro headwinds are being ignored. Investors are just rotating into parts of the S&P 500 that offer inflation hedges. 

“You have major, major forces at play and they’re all occurring at the same time,” said Alex Shahidi, co-chief investment officer at Evoke Advisors. “The net effect is hard to predict.” His approach is to diversify into commodity producers and gold. 

In addition, strong profits have made growth stocks cheaper and more enticing to own. The S&P 500 Information Technology sector is trading at 20.5 times earnings estimated over the next 12 months, down from nearly 26 at the start of June and a discount to its 10-year average of 23. 

“Earnings have overwhelmed” the macroeconomic risks, said Keith Lerner, chief investment officer and chief investment strategist at Truist Advisory Services, adding that he expects to see further earnings growth in the next round of reports. “On the other side of this, the evidence in our work suggests the bull market is still intact.”

S&P 500 member companies are expected to post their third consecutive quarter of more than 20% earnings growth when reports begin rolling in next month, according to data compiled by Bloomberg Intelligence.

“If you can make your way to the next earnings season, then all of a sudden you’re going to be hearing about what should be, I think, decent top- and bottom-line growth,” said Timothy Holland, chief investment officer at Orion. 

To be sure, plenty of strategists see rising bond yields as an immediate challenge that can’t be dismissed because of sharp earnings growth. Since the 1970s, the yield on 10-year Treasuries has been like an undefeated boxer, “in that every time it has risen something has broken,” said 22V Research analyst John Roque.

But for now, the prospect of another earnings season in which artificial intelligence drives gains and helps push the S&P 500 to its next record high is keeping investors in the game. 

“I am not willing or ready to give up on the underlying strength of the economy, earnings growth, liquidity, despite what are some very meaningful and really concerning macro headwinds,” Holland said.

–With assistance from Kerry Benn.

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