The stars are aligning for the stock market, but not in the way bulls might like.
There are four economic indicators that show remarkable similarities to 1999, the year before the dot-com bubble burst and stocks were plunged into a bear market, says Brad McMillan, the chief investment officer of Commonwealth Financial Network in Waltham, Massachusetts, which oversees $114 billion.
While McMillan isn't making an exact prediction for the top of the stock market, he thinks investors should be increasingly conscious of how economic data is flashing warning signs.
"The tech industry is booming, unemployment is low, consumer and business confidence are high, and investors are very complacent," McMillan wrote in a blog post on Wednesday. "Now, 1999 was a good year, just as 2017 is shaping up to be a good year. With the wisdom of hindsight, though, we know that even as things were great, the seeds of the next downturn were already growing."
McMillan drew a similar parallel to 1999 in an interview with Business Insider last month. He called an equity bear market "quite possible" sometime in the next 12 to 24 months. "We could be headed for some stormy weather over the next couple years," he said. Read the full interview here.
Meanwhile, check out four charts McMillan says highlight the uncanny similarities between 1999 and present day:
Consumer confidence is high
When consumer confidence was high in 1999, it peaked the next year before quickly falling, McMillan wrote in a follow-up blog post on Thursday. Translating that scenario to current times, the market would see a similar decline in early- to mid-2018.
"Based on the current data, confidence does appear to be topping," McMillan said. "Although there are no signs of a substantial decline yet, levels are certainly no longer increasing."
Source: Commonwealth Financial Network
Business confidence is high — even more so than in 1999
McMillan once again highlights an indicator that is high at the moment but stabilizing. If the comparison to 1999 rings true, the ISM Manufacturing Index will start dropping in earnest in early- to mid-2018, he said.
Source: Commonwealth Financial Network
The Fed is providing more monetary stimulus now than it did in 1999, according to the yield curve
The spread between the 10-year and 3-month rates is tightening at the moment, and we're nearing a "trouble zone" that marks a major recessionary signal, McMillan wrote in his follow-up blog post. He also highlights that while the Fed is keen to keep hiking short-term rates, longer-term ones are showing "no real sign" of a significant increase.
Source: Commonwealth Financial Network
See the rest of the story at Business Insider