The S&P 500 sits near record highs, but leadership is narrow…

Investors in Q4 1998–early 2000 lived through what felt like a validated new paradigm: Greenspan's productivity thesis, corporate internet capex, and Fed backstops made 'this time is different' feel empirically true. The Nasdaq 100 rose 85% in 1999 alone; Cisco crossed a $500B market cap in March 2000, briefly the most valuable company on earth. Sentiment surveys (AAII bulls, Investors Intelligence) sat near multi-year highs, and margin debt grew 62% YoY in early 2000. Skeptics — Grantham, Shiller, Julian Robertson — were publicly embarrassed; Robertson closed Tiger Management in March 2000 after refusing to buy tech. IPO issuance ran at $69B in 1999 with average first-day pops of 71%. Ex-tech earnings were mediocre — S&P 500 ex-tech EPS grew ~3% in 1999 — but no one cared because the winners were compounding revenue 40%+. The Fed's decision to hike 175 bps between June 1999 and May 2000 was seen as manageable given the productivity story.

Between March 2000 and October 2002, the Nasdaq fell 78% and Cisco — briefly the world's most valuable company at ~$555B — fell 89%.

Investors in summer/fall 2007 experienced a market that felt like it was pricing 'immaculate disinflation before the fact' — the Fed was cutting insurance-style, headline earnings were fine, and the curve was re-steepening constructively. Bear Stearns' two mortgage hedge funds imploded in June 2007, but the S&P shrugged it off and made new highs into October. Sell-side strategist year-end 2007 targets clustered at 1,600–1,700 on the S&P. Sentiment surveys were bullish; positioning in energy and materials was crowded (crude oil futures long positioning at records by mid-2008). Below the surface, subprime delinquencies had been rising for four quarters and the ABX BBB- index had fallen 60% by mid-2007, but equity investors treated it as contained to a narrow slice of housing finance. Corporate credit spreads widened modestly from May 2007 lows but stayed benign by historical standards. The playbook of the day was: buy energy, buy China exposure, buy quality tech, avoid financials and homebuilders.

The S&P 500 made a new all-time high five months AFTER the yield curve began re-steepening in mid-2007, then fell 57% over the next 17 months.

Portfolio managers in 1972 were told — and largely believed — that quality mega-cap growth compounders would justify any multiple over a long enough holding period. Morgan Guaranty Trust's institutional book was famously concentrated in the Nifty Fifty; being underweight IBM, Xerox, or Polaroid was career risk. Analyst notes emphasized dominant market share, superior returns on capital, and multi-decade growth runways — the language rhymes exactly with today's AI-hyperscaler narrative. Retail participation was elevated after the 1968 speculative peak had already flushed out speculative small-caps; 1971–72 was the 'flight to quality' rally where money crowded into names that had 'worked.' Bond yields were rising and CPI was already at 3.6% in late 1972 heading higher, but equity investors treated the growth names as inflation-immune. Below the surface, EPS trajectories at names like Polaroid and Xerox were flattening even as multiples climbed. When the oil embargo hit in October 1973, the market had already been declining for nine months, but the shock accelerated the process.

Polaroid fell 91% (from $149 to $14) between 1972 and 1974 despite growing revenue every year through 1978 — the business was fine; the stock was not.