I'll admit that like many economists and market commentators, I have warned about more market calamities than have actually come to pass. I'll say this in my defense:
If you ignore risk, you take your chances with what the market does next. If you always seek to account for risk, you can ride the highs without being pummeled by all the lows. Over time, that's a more gratifying investment experience.
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Gamblers eventually run out of money. Investors endure.
That's why the comparison below between the S&P 500 Index ($SPX), the Nasdaq-100 Index ($IUXX), and the U.S. 10-year Treasury Bond yield in 2000 and 2026 caused me to shout "whoa!" while I was home alone.
I'm going to show you three charts that at the top each show SPY and QQQ over a period of time. And in the bottom frame, the U.S. 10-year Treasury Bond rate over that same period.
First, here is June 2, 2026, through last Wednesday's close. SPY has been trying to break its flat plane for a few months to no avail. It isn't crashing, but it is stagnating.
Now take a look at the same indexes, the same dates. But from a different calendar year. This is the year 2000, as the dot-com bubble was bursting. The stock market peaked in March 2000, and flopped around for a bit. But as of this time (mid-September) of that year, Wall Street pundits were still saying things like "with all that's happened, we're still just below all-time highs."
Maybe my eyes are just getting older. But I see a lot of similarities between 2026 and 2000. More importantly, I remember that latter era vividly. As a portfolio manager, market technician, and plain old human living through the early days of a life-altering technology. Just like today.
Now, we don't know what will happen during the remainder of September, October, the rest of 2026, and over the next 12 months. But on the odd chance that 2026-2027 continues to resemble 2000-2021, let's see what happened to SPY, QQQ, and the 10-year rate.
To quote the great philosopher Scooby-Doo, "ruh roh." SPY experienced a slow but steady decline, which left it 23% lower.
QQQ took it on the noggin, down 64% in just under a year, on the way to a more-than-80% crash from 2000 through early 2003. It even bounced a couple of times and rallied back sharply and quickly before resuming its relentless path downward.
As for that 10-year bond yield, it reversed about 1% of the move that peaked during 2000. It would make its way down to 3.1% by mid-2003, before that cycle of lower rates was over. Naturally, a deep recession resulted from the 2000 top, so lower rates were part of the package.
And they would be again, if the past turns out to be a prologue. If I estimate what a similar scenario would produce in terms of forward-looking market levels, here's what I get:
SPY (now $763) would drop 28% to around $550.
SPY (now $763) would drop 28% to around $550.
The 10-year UST rate (now 5%) would drop by about 2% to 3%.
The 10-year UST rate (now 5%) would drop by about 2% to 3%.
Now here's the biggest irony of all: Those levels are ALL logical destinations for the market in the next decline. Take SPY for example. If it dropped to $550, it would only be back to where it sprung higher shortly after the 2025 tariff tantrum. That's a round trip from that level over about 27 months. Completely normal in market cycle history!
As for QQQ, even a risk management connoisseur like me cannot fathom a decline to $260. That is all the way back to its 2022 year-end level. But even if it returned to its 2025 tariff tantrum low, that's $400. A decline of more than 40% from here, which again is very normal for when market cycles reverse.
The 10-year rate is by far the toughest for me to reconcile with the past, given that the bond market is not nearly as emotionally unstable as the stock market is. However, with a duration of about 8 years, that would imply a potential 15%-20% gain in such bonds if rates did indeed fall by 2%.
Crazy? Not really. Also not an assumption we can make. But to me, risk management includes "war gaming" scenarios in advance. If this were to play out even remotely as I laid out above, it would be a source of regret for many investors. So we might as well do the "what if" analysis now.
Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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