In short
Whether the “epic technology mini-crash” after a huge tech rally is a brief blip or the start of something bigger; plus what to expect from the SpaceX IPO and whether today’s tech action resembles 1999/2000.
Guests
Nick Colas and Jessica Rabe, co-founders of Datatrek Research and authors of Datatrek’s daily morning briefing (1,500+ clients). They also run a YouTube channel.
Key claims
U.S. large-cap tech’s 50-day outperformance vs the S&P 500 was a six standard deviation event (29.3 percentage points on June 2). Semiconductors beat software by 44 points (~4 standard deviations) as of June 3, implying likely rotation. The broader S&P 500 is less extreme (two standard deviations) and historically has gained ~7.3% 50 days later after similar moves. Friday’s sell-off was amplified by market-making algos reacting to overextension, plus macro/rates pressure.
Notable examples
Semis/software proxies (SMH, IGV); circuit-breaker “sidecars” in South Korea; SpaceX IPO fixed $135/share at ~$1.8T; day-one IPO return benchmarks (1997/98 vs 1999); NASDAQ 1999 pattern: +84% in ~6 months then -34% by April 14.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOAnalyzing Recent Tech Performance
0:16 to 0:46
Discussion on the extreme performance of U.S. large cap tech stocks and implications.
“WisdomTree believes Japan is entering a new era.”
Analyzing Recent Tech Performance
1:59 to 3:41
Discussion on the extreme performance of U.S. large cap tech stocks and implications.
“large cap tech stocks just outperformed to the most statistically extreme degree in the last decade.”
Understanding the Historical Context
3:42 to 5:14
Exploring historical comparisons of tech rallies and potential market corrections.
“And what's even more amazing about that is that 50 days before that gain was still six days before the late March lows.”
Sector Analysis: Semiconductors vs. Software
5:18 to 8:34
Comparing performance metrics between semiconductor and software stocks.
“I think intuitively, though, people who have been around for a long time will probably ask you guys or maybe already have, okay, this is so far off the charts that it is unprecedented.”
Broader Market Insights
8:37 to 10:48
Evaluating the performance of the S&P and its future potential.
“I wanted to ask you, it seems to me that in the last couple of weeks, the accelerant for tech outperformance versus the S &P was actually because the software names bounced.”
Market Volatility and External Factors
10:50 to 14:00
Discussing the impact of market volatility and economic indicators on stock performance.
“It's not extreme enough that the risks get out of control.”
Understanding Tech Sell-Offs and Interest Rates
14:00 to 18:45
Explore the dynamics of tech stock sell-offs in relation to interest rate movements.
“labor market from one that had been slowing a lot last year to one that actually looks pretty healthy.”
The Impact of Six Standard Deviations
18:45 to 19:12
Learn why the six standard deviation move in tech stocks warrants attention.
“I don't know if you play street hockey as a kid.”
SpaceX IPO: Market Dynamics and Expectations
19:12 to 24:34
Gain insights into the unique aspects of the SpaceX IPO and its implications.
“And it was like nothing ever happened, like right back into it.”
Market Structure and Historical IPO Challenges
24:34 to 28:00
Understand the historical context of IPOs and potential challenges for SpaceX.
“You're right about Elon, but you're not right about the bankers.”
Show all 13 chapters
Market Structure Issues and SpaceX IPO
28:00 to 29:20
Explore the challenges and observations regarding market structure and the upcoming SpaceX IPO.
“A lot of people were like, where is the pop?”
Comparing Today's Market to 1999
29:20 to 33:00
Understand the parallels and differences between the current tech market and the dot-com bubble of 1999.
“Would you like to jump out of a SpaceX Falcon 9 rocket?”
Key Takeaways on Market Volatility
33:00 to 33:40
Learn why the current market's behavior does not yet indicate a bubble.
“I almost don't think you can because the dollar amounts of the largest market cap companies are too large.”
Transcript
Automatic transcript. May contain errors.0:13Jessica Rabe:Today's episode is brought to you by WisdomTree. WisdomTree believes Japan is entering a new era. Corporate reforms and stronger shareholder policies are changing the game and investors like Warren Buffett have taken notice. The Wisdom Tree Japan Opportunities Fund, ticker is OPPJ, is designed to invest in Japanese companies positioned to benefit from macroeconomic policies, industrial innovation, and shifts in trade and consumer behavior. See the link in the show notes to learn more about OpJ and the broader suite of geopolitical opportunity ETFs. Ladies and gentlemen. Is that a good start? I've never done that before.
0:59Jessica Rabe:All right. Ladies and gentlemen, welcome to an all new edition of What Did We Learn? On today's show, we're going to answer one of the biggest questions facing the stock market today. And that is, was the epic technology mini crash of Friday the start of something bigger? or maybe something we'll just look back on as a blip. I got two really smart people here to help me with the answer to that question. Joining me once again, Nick Colas and Jessica Rabe, co-founders of Datatrek Research and the authors of Datatrek's morning briefing newsletter, which goes out daily to over 1 ,500 institutional and retail clients.
1:44Jessica Rabe:Nick and Jessica also have their own YouTube channel, which you can find a link to in the description below. Welcome back, guys. So good to see you. Happy summer. How's everything?
1:55Josh Brown:Happy to be back. Thank you for having us.
1:57Jessica Rabe:All right. Let's get right into it. Jessica, you point out that U.S. large cap tech stocks just outperformed to the most statistically extreme degree in the last decade. You note tech beat the S &P by 29.3 percentage points over the prior 50 days as of June 2nd. That is a six standard deviation event. Let's put your chart up and tell us what's going on here.
2:27Josh Brown:Yeah, that is wild. Like you just said, US large cap tech stocks just outperformed by the most statistically extreme degree in the last decade, including after every crisis. So we thought we'd start by just discussing what happened and see what's next for this market leading sector. So this first chart shows the relative 50-day price returns between the S &P 500 tech sector using the XLK ETF as our proxy and the S &P from 2015 to the present. So in the blue lines above or below the x-axis, tech has out or underperformed the S &P by the number of percentage points shown on the y-axis. Now, since 2015, the tech sector has outperformed the S &P by an average of 1.6 percentage points over any given 50-day holding period.
3:14Josh Brown:The standard deviation around that mean is four points. So we noted the six standard deviation upside level you just mentioned of 25.6 points with a dotted red line. You'll see on the right side of the chart that tech just beat the S &P by 29 percentage points over the prior 50 days on June 2nd. That's over a six standard deviation event and the most extreme reading in our data set by a wide margin. And what's even more amazing about that is that 50 days before that gain was still six days before the late March lows. So as for what this means, I have three quick points. Wait, I'm sorry.
3:55Jessica Rabe:Let's double click on that. So that is inclusive of the biggest sell-off of the year so far.
4:02Josh Brown:Yes. And so, which actually leads into my first point really well, because the first is that there's no recent historical playbook for what tech has just done. This move dwarfs every prior stress and recovery episode, including the 2020 pandemic crisis, 2022's rate shock, 2025's trade policy shock, and repeated AI sentiment scares. None produced a relief rally of this magnitude. The March 2025 lows help explain the start of the move, but not its scale. So second, the algorithms that underpin the U.S. stock markets already knew this math. that tech was very overextended heading into Friday's sell-off.
4:45Josh Brown:It was the 47th, almost 50th trading day off the March 30th lows. So market-making algos will likely remain cautious and amplify any further selling in tech names. And third, any trader with a good risk management process will likely see this math as a compelling reason to be cautious on tech. Whether Friday was a pause or the start of a major rotation out of the sector is genuinely unknowable at this point because we are in truly uncharted statistical territory.
5:18Jessica Rabe:I think intuitively, though, people who have been around for a long time will probably ask you guys or maybe already have, okay, this is so far off the charts that it is unprecedented. And therefore, the reaction to this, to the downside is unknowable. But I think people would say like, all right, but mentally I can picture previous extreme rallies in tech. And I know that those didn't necessarily have a nice aftermath. And like everybody will revert back to 25 years ago, the bursting of the dot-com bubble. Like we're saying that this 50-day move, not the whole tech rally, but this particular moment in time is extreme, even versus that period of time, any 50-day period, let's say in 1998 or 1999.
6:10Jessica Rabe:Like we think it's up there with those?
6:12Josh Brown:No, it's still not comparable.
6:14Jessica Rabe:Still not there. Okay.
6:16Nick Colas:We have that math in the final section of today's video, so we'll get there. But it's exactly the right point.
6:22Josh Brown:That's a great point. Yeah, we'll get there. I think what is useful, and this is a good segue to my second point, is let's look at the two major subcomponents of tech, namely semis and software. And we have another chart for that as well. So this compares the rolling 50-day relative returns of U.S. large-cap semiconductor and software stocks. We use the VanEck semiconductor ETF SMH, and the iShares expanded tech software ETF IGV as our proxies. When the blue line's above zero, semis are outperforming software. Now, historically, semis do typically outperform software, and there's actually a really good reason for that.
7:01Josh Brown:Moore's Law may have slowed down somewhat, but semi-compute per dollar still doubles fairly quickly, and that allows these companies to leverage their products for an ever-increasing range of use cases. The long run average is 2.7 percentage points of outperformance in favor of semis over any given 50-day stretch, and that edge has been increasing. But like the tech chart that we just looked at, as of June 3rd, semis have beaten software by 44 points. That's four standard deviations above the long run mean, and once again, the most extreme reading we've seen in the last decade. Now, of course, yes, this move has not come out of nowhere.
7:45Josh Brown:Semi-fundamentals have been exceptionally strong. Earning revisions continue to move higher. Momentum has been historic, and investors remain highly confident in the AI infrastructure build-out. But, and you are getting to this, Josh, markets are rarely linear. Historically, when leadership becomes this concentrated and relative performance reaches these kind of extremes, the next move is often rotation rather than continued acceleration. So for tactical investors, that argues for reducing semi-exposure and looking more closely at software here. And for longer term investors who still believe in the AI story, we think an index weight approach to the tech sector as a whole makes sense because you maintain exposure to the theme while reducing the concentration risk that a semi-reversion would disproportionately punish.
8:36Jessica Rabe:I like that idea. I wanted to ask you, it seems to me that in the last couple of weeks, the accelerant for tech outperformance versus the S &P was actually because the software names bounced. And the money did not rotate out of semis to buy them. The software and semi names started to rally together. not all software like notably microsoft sort of sat things out but oracle came back with a vengeance that's a big component in the igv we also saw the cyber security stocks go absolutely crazy uh crowd strike which i own palo alto or like all in other words all of a sudden this drag on tech sort of reversed itself and then it was like oh wait a minute this is turning into a tech rally for the ages.
9:25Jessica Rabe:They're all going up together. And that was sort of like what went on right before Friday. Yeah.
9:32Josh Brown:And again, that does lead us to our third point where the picture is actually more positive for the S &P. And we should see that as you do start to see these other groups working. So I thought we'd just zoom out and also do one last search chart on the S &P. It shows the S &Ps rolling 50-day price returns since 2015. Unlike tech, the broader market isn't exhibiting the same level of excess. The S &P's average 50-day return over the last decade is 2.4%. And as of June 1st, index was up 15.3 % over the prior 50 days. That's a two standard deviation move. So still strong, but not nearly as extreme.
10:14Josh Brown:And what's interesting is what happened next in prior instances. So since 2015, the S &P has first crossed that two sigma threshold five other times. And in every case, the market was higher 50 trading days later. And the average forward return was 7.3 percent. Even the weakest outcome still gained 2.6 percent. So ultimately, price momentum is a powerful factor in capital markets. Tech may be stretched and semis may be do for a pause, but history says the S &P itself still has room to run from here. Okay, so we're not against two standard deviation S &P rallies.
10:55Jessica Rabe:It's not extreme enough that the risks get out of control. And to your point, most of the time, you sort of get a happy outcome by that level of confidence in the market until it crosses over, obviously, into something a little bit more exaggerated.
11:13Josh Brown:Correct.
11:14Jessica Rabe:Okay. Nick, what's your read on those charts from Jessica?
11:18Nick Colas:I mean, the first one is just, we started it with it for a reason. It is an amazing chart, and it really does put everything in perspective because you've got this massive rally in tech, like little you haven't seen in the last decade. And we'll talk about it later, but I'm always wary about 1999 comparisons. I was at SAC in 1999, and I was thinking back in my head, If you weren't on a desk somewhere trading those stocks, don't try to compare it to day-to-day then because it's apples and oranges. That was a much bigger rally, a much crazier time. But still, that tech number, that tech return number is out of this world.
11:52Nick Colas:And I keep coming back to Jessica's market structure point, which is that algos that do all the sinking of the capital markets in this country, they know that math. They are built on that math. They literally are built on 15-100-day standard deviation of daily returns. So that's one reason why I think you saw that cascading sell-off on Friday, because the market-making algos said, oh, I know where these things have been. I'm not stepping in front of them. I'm widening out my bid-ask spread. I'm not going to take any risk because I see this as a rollover after a statistically very anomalous period.
12:25Jessica Rabe:Right. So was the origin of that sell-off in Korean stocks, and then it carried over into the memory trade here in the US, or was it the other way around, where the SanDiscs and the Microns got hit first, and then that spilled over into Asia?
12:45Nick Colas:I sort of can't tell. I see it. Yeah, I mean, it's a great point. I see it as our market first, then South Korea, but South Korea is up 100%, and it looks even crazier versus EM than tech does versus the S &P. And so you have the same dynamic at work. All of a sudden, every statistically oriented trader says, I get what's going on. There's a pullback. South Korea is a notoriously volatile market. I mean, they're doing what they call sidecars, which we call like trading slowdowns. Every day the last couple of trading days. What does that mean? Can you explain what that is? Yes. In every market, there are circuit breakers of various kinds where when things get too volatile and there's a statistical measure, what percentage drawdown, the market slows down or stops for 10, 15, 20 minutes to reset and allow buyers to come back in.
13:33Nick Colas:That's the exchange rule. Yes, exactly. So it's the same kind of thing we have here with circuit breakers. Those of them getting hit like every day the last three days in South Korea. What do they call them? Sidecars.
13:45Jessica Rabe:I wonder why they call it that. I don't know. Okay. All right. Me either. Okay. So there have been a bunch of those because the selling has gotten extreme enough to require that.
13:58Nick Colas:And look, in fairness, not to drag too much into this, but a jobs report on Friday and the revisions to the last two months really reshaped the picture of the U.S. labor market from one that had been slowing a lot last year to one that actually looks pretty healthy. The rate market was not happy with that. Two years hit a new 12-month high. And the worries about a Fed rate hike and potential Fed policy mistakes and higher cost of capital, that didn't help either. So it was more than just the semis.
14:29Jessica Rabe:Okay. Right. I think the rates story sort of exacerbated what would have been a sell-off either way. You had people sitting on huge paper profits that all of a sudden started to go away. Yeah. I think you have a lot of retail in these stocks now and a lot of leverage and a lot of options. So I sort of think it would have been an extreme day. but then having the broader macro-related selling on top of that is probably what made it look as extreme as it ended up looking. What do you guys think of that idea?
15:05Nick Colas:That's fair. I mean, tech was down 6.66%, which kind of was an eye-popping number for numerological reasons. Probably would have been down 3 % just on the semis rollover, but the macro did not help. Do we have to take more pain in tech
15:20Jessica Rabe:if the projection for the next interest rate move increasingly looks like it'll be a hike rather than a cut? Does more air have to come out of that balloon or not necessarily because the earnings growth continues to manifest? Like what's your view on that?
15:42Josh Brown:Oh, that's a great question. Yeah, higher rates, we think higher rates are only an issue if they go up so quickly that there's a rational fear of recession. So if inflation continues to increase and the Fed gets behind the curve, that's a legitimate worry for tech, as we saw in 2022, especially as hyperscalers ultimately have cyclical cash flows.
16:02Jessica Rabe:We were talking about insurance cuts as recently as six months ago. No one is talking about insurance cuts anymore. Goldman Sachs just removed any interest rate cut from its year-end forecast. we're going to hear from the FOMC on June 16th, June 17th. And that'll be the first Kevin Warsh Fed-led meeting. I think tech stock investors are paying attention to that. I don't think people are worried about the AI CapEx theme right this moment. It seems like we just got all the affirmation we needed, not only from the earnings reports, but just in the confidence of the private markets to invest in Anthropic at the valuation they're investing in.
16:49Jessica Rabe:And the size of the TAM that SpaceX is projecting for generative AI stuff. I think everyone feels good that the earnings will show up for the AI theme, but the rates thing now, all of a sudden, is like a new dimension that we weren't really worried about a quarter or two ago.
17:09Nick Colas:No, it's very true. And as Jessica said, I mean, rates only matter when they go up so fast. The speed of the rate.
17:16Josh Brown:The rate of change.
Read the full transcript
17:17Nick Colas:Yeah. And look, I mean, Friday, again, it was a one-year high in twos. Twos track Fed funds' futures and sentiment about Fed rate increases. So when you get a new high in twos, you think, oh, you know, the Fed's going to have to be raising rates a couple of times. And then I've got to worry about what effect that has on the economy. And we're already very late in the cycle. And if you look at a long-term cycle chart of two-year yields, you get a recession about a year or two after a cycle high in twos. So when you break out to a new high, you start thinking, oh, now I've got to worry about a recession again.
17:48Jessica Rabe:I don't think what we saw on Friday is enough to knock the investor enthusiasm for AI completely off course. And I know it's unknowable, but gun to your head, based on all the data that you guys have seen, Do you think that we'll look at what happened on Friday as sort of like a tempest in a teacup, like the deep seek sell off in January? Or do you think this really bears watching the recovery from it because it could end up being way more meaningful? What would you guess if you had to take a guess right now?
18:27Nick Colas:I guess I'll go first. I will not walk away from a six standard deviation move and say, oh, well, I'm just going to say things continue as they were. That is something to say, look, pay attention. It's okay to be bullish. I think it's okay to be bullish. But let's not walk away from that first chart because it's incredibly important. Let's be a little cautious here.
18:49Jessica Rabe:So it's not a game on moment to you. I don't know if you play street hockey as a kid. We play street hockey. We didn't have an ice skating rink nearby. So we would just put the pads on, roller skate in the streets, and we put the goals in the streets, and then a car would come. So you had to take the net and move it to the sidewalk, let the car pass. The car would pass. All right, game on. And it was like nothing ever happened, like right back into it. You don't necessarily think that people should have that attitude now. Just put the goals back in the street. Let's keep playing.
19:26Nick Colas:I think it's okay to keep playing, but keep looking for the next car. Yeah. The Six Sigma thing is do not walk away from that. It's important.
19:36Josh Brown:We're long-term. We've always been long-term bulls on tech, but six standard deviations is just absolutely off the charts. Yeah.
19:45Jessica Rabe:All right. I mentioned SpaceX. We think this comes public at the end of this week, possibly. That's the latest talk that I've heard.
19:54Nick Colas:Yeah. Okay.
19:58Jessica Rabe:Nick, let's go to you on this. You've been involved in a lot of IPOs. You've certainly seen your share of companies come public. Tell us what your reaction is to not just the size and how much they're raising, but just, I guess, the amount of clamor amongst investors for the deal, the amount of media attention. What's your reaction?
20:21Nick Colas:Yeah, I pulled together a little PowerPoint page. So let's just walk through that because there's five points that I think investors ought to need to know. The first one alludes to what you discussed, which is this is a very odd deal. And it's a fixed price issuance. It's$135 a share. Typically speaking, when you market an IPO, and I marketed a ton of IPOs in the 90s, you go around, you visit institutional investors, you gauge their interest, you build a book. The bankers look at the book and say, okay, we think the price should be X. The company says, okay, and off you go. So here, the company has said it is$135 a share at$1.8 trillion,$1.77 trillion.
20:56Jessica Rabe:They told the underwriters, this is the amount you're valuing the company at. And the underwriter said, yes, sir, just put us on the cover of the book. Yeah. Well, look, you have no choice with Elon.
21:09Nick Colas:And you have no choice on this deal, period. Now, that means that you're not going through the traditional book building process. You are basically saying, here it is. Come one, come all. This is the price. I can guarantee you that institutional investors would be very happy by the stock at 80, 90, 100. You know, a 1.2, 1.3, 1.5 trillion dollar valuation. 1.8 is a stretch and there's 50 ,000 ways to assess that. But it's a stretch. I think anybody would agree with that. But it leaves retail investors basically creating the day one valuation for better or worse. And that's an important thing to know.
21:41Nick Colas:This is not your standard IPO. Just in so many ways, but that's an important one. Price discovery is not happening in this IPO. Price discovery is happening on the first trade and thereafter. The second point to understand is there are classic ranges for how much an IPO should go up on the first day. And I pulled together a couple of numbers from Jay Ritter, who's got all this data at the University of Florida, does fantastic work on IPO returns. The average day one IPO gain in 97 and 98, going into the bubble, was 14 and 22%. That translates into a first day close for SpaceX of 154 to 166. So if you see the thing close 154 to 166 on day one, that's a pretty average, nice, middle-of-the-road tech stock first day return.
22:28Nick Colas:However, in 99, when things got bananas, the average IPO first day return was 71%. I know, because I bought them all.
22:37Jessica Rabe:And not at the IPO price. I was there I hear you exit liquidity
22:47Nick Colas:if SpaceX closes day one 231 we are legit in a 99 bubble particularly with a deal of this size
22:54Jessica Rabe:that's such an interesting way of looking at this before we get to the last is it 98 or is it 97 for AI or is it 99 well here are the average IPO returns, you tell me.
23:10Nick Colas:I love it. Yeah, that's how you know. I mean, this is for anybody, regardless whether you're investing in the thing or not, this is the most important tell for Friday's price action. Full stop. Okay. If we only get last year's average IPO return, it's 174. So let's look and see. We'll all see on Friday where we're at. We literally are going to set the calendar for where we are versus 1999 or 1997. So the premium to that 135. Okay. I love it.
23:37Jessica Rabe:That gives that gives my compounders a scorecard, something to monitor for.
23:45Nick Colas:Yeah, just put that on a sticky next to your trading screen and that's all you need to know. A couple of other final points. Tesla finally has a valuation comp. As long as Tesla's been public, we've had no real comp to it because it's a must company and who knows how to value that. We now finally have one. And actually SpaceX is coming public at that valuation slightly more than where Tesla was trading on Friday. So Tesla was$1.5 trillion. SpaceX is coming$1.8. There's going to be questions about merger. I can tell you from having written a lot of S1s, if there were ever merger discussions, they would have had to have been in the S1 that was filed for SpaceX.
24:20Nick Colas:Otherwise, you're going to get sued.
24:22Jessica Rabe:Who would? I don't think he cares about being sued. I think they discuss it every single day. And it almost doesn't matter if anyone discusses it. If he's discussing it in his own brain, that's as powerful as a board meeting
24:36Nick Colas:in my estimation. You're right about Elon, but you're not right about the bankers. Bankers care about getting sued a lot.
24:44Jessica Rabe:Okay.
24:45Nick Colas:So no formal discussions. They would have gone through and read the board meeting notes to do their due diligence to make sure this wasn't a thing.
24:57Jessica Rabe:I don't really think that he has an interest in merging them until one of them gets into trouble. or both of them. And then that's sort of like, well, I always wanted to do this all along. That's what prompted all of the mergers that he's done with his own companies.
25:13Nick Colas:So I agree with you. I don't think that's going to happen in your term. It's historically true, but I would put a little different spin on it. He might want to merge Tesla with SpaceX when Tesla is making a lot of free cash flow from robots. Because the one thing SpaceX is short is cash flow to finish. And that's literally why they're going public, to raise the capital. So Tesla, to my mind, is like a near-dated Musk option. If the robot thing works out, we'll know in 24 to 36 months. And then Tesla will trade on that. SpaceX is a very long-dated version of Musk. It's 5, 10, 15 years. And so there are going to be people who think, should I own one or the other?
25:48Nick Colas:I think it's either both or none. You either believe in Musk's vision and you want a near-dated version and a long-dated version. Or you say, no, this is too highly valued and the governance is too weird. I don't want it. in. Index inclusion, we should just cover that briefly. It's going to go into the queues 15 days or so after the IPO on a fast entry rule, which the NASDAQ just changed for these big deals. That's going to add roughly, let's call it$15 to$20 billion of demand on a$75 billion float, so roughly 20%, so a lot of demand. The thing people aren't talking about is that the lockups are shorter for this deal than usual.
26:28Nick Colas:Typically speaking, with an IPO, if you're an insider, you can't sell for 180 days. So the first six months, there's no stock available. That's different here. 20 % of the stock, ex-Musk's sake, comes available right after Q2 earnings. Another 10 % becomes available if the stock is more than 30 % higher than the IPO price going into the earnings. Then another 70 % becomes available at various days short of 180 days. and 28 % becomes available after Q3. So there's a lot more stock coming than just the usual IPO lockup, a lot more. That's going to balance out the index demand, but not right away.
27:08Nick Colas:So there'll be a lot of volatility over the first couple of weeks as the market tries to figure out the index price value.
27:14Jessica Rabe:Okay.
27:15Nick Colas:Final point, which I just want to touch on briefly. I was around when Facebook went public and it was very difficult because the volume kind of overwhelmed the NASDAQ and the market makers. I am sure the NASDAQ has stress tested their system, but this is going to be a very big deal with a lot of retail demand. So there is always some risk of a market structure hiccup on Friday just because of what's going on with this one stock. So that's something to be watched for as well.
27:42Jessica Rabe:I remember watching the Facebook IPO in 2012. It was May of 2012 and it was NASDAQ, not New York Stock Exchange, although it had two letters in the ticker symbol, which confused some people. Came public at 40, got to 42 for 10 seconds. It sold off to 40. A lot of people were like, where is the pop? Why isn't it doing anything? The volume was off the charts. I remember there was some issue at the NASDAQ. You probably know better than I do. They had some issue identifying the current price in the moment because they were unaccustomed to having a new issue with that many shares trading all at once.
28:27Jessica Rabe:And then ultimately, I think it fell to 12 or 18 before it really found its footing and its actual shareholder base.
28:37Nick Colas:Yeah, there were two problems. The first was market structure on day one. People didn't know if it got filled on their orders for hours. So you can imagine what that was like. The second one was that they gave selective disclosure to some of the analysts on the deal about their lack of mobile traction. And when that came out, it really eroded trust in the company. That's why the stock got to 12. So there's a market structure on day one. Again, I don't think this is going to happen to SpaceX, but it's worth just bringing up. Let's watch the trading action on Friday because it's going to be a deluge of action.
29:06Nick Colas:And that historically has been sometimes difficult. We saw it also with the ETF flash crash in August 2015. So huge volume sometimes overwhelms the system. And let's just be on the watch out for that.
29:17Jessica Rabe:Okay. Before we move to our last topic, Jessica, anything on the SpaceX IPO? Would you like to jump out of a SpaceX Falcon 9 rocket? What are we thinking?
29:29Josh Brown:I have one of my best friends who's also a skydiver, is an engineer at SpaceX.
29:35Jessica Rabe:Okay. So, yeah. So they must be pretty excited.
29:39Josh Brown:Maybe I have a little inside connection there. We'll see what we can make happen.
29:44Jessica Rabe:Yeah, yeah. All right. we're going to end with what really happened in 1999 this is I think a really important sort of comment because anytime tech stocks are rallying as furiously as they've rallied and then have like a massive sell off we almost can't help it as human beings it's just the first thing that we go back to is it 99 What aspects of this feel like 1999? How is it not 1999? It's just, it's hard. Because, listen, if you live in a town and there's a dormant volcano that all of a sudden springs back to life, is this Pompeii? This is the way we think.
30:32Nick Colas:We're humans.
30:34Jessica Rabe:Yes. But talk to us. Show us the chart.
30:37Nick Colas:Okay. This is a chart of the NASDAQ. Very simple. The NASDAQ from 1999 through the end of 2000. and I've noted a couple of numbers, and I'll just read them out. In Q4 of 1999, the NASDAQ was up 37 % in a quarter. From January to the March 10th highs, it was up another 24%. Those numbers don't add, they actually compound. And so from the beginning of Q499 to the top in March 2000, the NASDAQ was up 84%, almost a double in less than half a year. We don't have anything like that today, period, full stop. Because let's not forget the Nasdaq had been up every year since 95. It was this amazing rally.
31:20Nick Colas:And I remember it vividly. You just couldn't, and this all came around Y2K as well. So there was just this weird kind of millennium kind of vibe combined with this amazing rally in tech. The crappiest names were going public and you saw the IPO pops the first day. It was absolutely insane. But an 84 % gain over less than six months is not to be believed, literally. And that came through in the second part of the chart, which honestly is just as important, is from March 10th to April 14th, the NASDAQ fell 34%. Now, it was still up versus the beginning of Q4. That's how people rationalized it. But when you see this kind of volatility, both to the upside, but just as importantly to the downside, a 30 % correction in a matter of five weeks, you know price discovery is broken.
32:09Nick Colas:You know the market no longer has any fundamental underpinnings because there is no reason why any asset class is up 80 % over the course of six months and then falls 30%. That means people are just chasing momentum. Nobody has a fundamental anchor. And that's when you start getting concerned. But the numbers, the volatility numbers are much higher than what we're seeing even like on Friday. So to me, the message to this is, you know, don't talk to me about a 20 % gain in tech or a 30 % gain in tech. Tell me that tech goes up 50 % and then down 30%. And then I'll start thinking about a bubble because a bubble means price discovery is lost.
32:46Jessica Rabe:Right. You might have that in individual stocks or little corners of tech, tiny market cap things like quantum stocks. But like to get that in the modern NASDAQ 100 and 84 % six month rally. I almost don't think you can because the dollar amounts of the largest market cap companies are too large. Like, I don't think the dollars exist for that.
33:10Josh Brown:Well, you could even just use our simple rule of thumb in comparison to 99, a double is a bubble and the NASDAQ composite that happened at the height of the dot com bubble were up like 34 % over the last year. Nowhere close.
33:25Jessica Rabe:Yeah, it's not it's not even right. There are some aspects of this where it feels like it's an echo of that era, but the fundamentals are very different and the extremities are not extreme enough to the current reality. All right. It's a great place to leave it. I want to tell people where they can find out more from you guys. Guys, if you are into Nick and Jessica's research, and I know you are, make sure you click the link in the show notes so you can find their YouTube channel. And of course, you can become a subscriber yourself to Datatrek Research. And it's really easy to find. Datatrekresearch.com.
34:07Jessica Rabe:And you can get a delivery of Nick and Jessica every day if you so choose. Guys, thank you so much for joining me. Thank you. I hope you have a great summer. Thank you. plans to check in soon. So we will be back with What Did We Learn? Thank you guys for watching. Thanks for listening.
From the publisher
On this episode of What Did We Learn, Josh Brown, Nick Colas and Jessica Rabe examine one of the most extreme stretches of tech outperformance in recent market history and discuss what it could mean for investors going forward. They break down the growing gap between Semiconductors and Software, the role of rising interest rates, and whether leadership is becoming too concentrated.
They also take a closer look at SpaceX and why its highly anticipated IPO could be one of the most important market events in years. The crew also revisits the lessons of the dot-com boom, exploring what really happened in 1999, how investors knew the market had gone too far, and what today's environment can teach us about spotting excess before the tide turns.
This episode is sponsored by WisdomTree. To learn more about learn more about OPPJ and the broader suite of geopolitical opportunity ETFs WisdomTree offers, visit: https://www.wisdomtree.com/us/strategies/geopolitical-opportunities
Sign up for The Compound Newsletter and never miss out!
Instagram: https://instagram.com/thecompoundnews
Twitter: https://twitter.com/thecompoundnews
LinkedIn: https://www.linkedin.com/company/the-compound-media/
TikTok: https://www.tiktok.com/@thecompoundnews
Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information.
Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here:
https://ritholtzwealth.com/podcast-youtube-disclosures/
Learn more about your ad choices. Visit megaphone.fm/adchoices