Traders talk of a 1999-like melt-up. But here's what really happened back then.

By Jamie Chisholm

The dotcom bubble saw the Nasdaq double in the last six months before the pop

The bulls expect to keep running

The stock market seems to be taking a bit of a breather after registering another record high midweek.

But bulls remain confident. The historically high valuations are not a concern, they argue; once the third-quarter earnings season really kicks into gear next week investors will be proven correct to be so optimistic, they reckon.

There's even a positive take from the ongoing political turmoil. Fundstrat's head of research Tom Lee thinks that investors are seeing through the U.S. government shutdown "noise" and recognize that any hit to economic activity will only make the Federal Reserve more dovish.

Add to that the typical seasonal rally, which observers believe is partly caused by fund managers scrambling to ensure they can show 2025's winning stocks in their portfolioslooking, and the market is set fair. Lee still sees 7,000 for the S&P 500 SPX by year-end.

Indeed, talk of a market melt up has been doing the rounds in recent days after Paul Tudor Jones, the billionaire investor and founder of Tudor Investment Corp., warned that stocks were in a bubble, but that could still mean they surge further before hitting a "blow off" top.

"All the ingredients are in place, and, certainly from a trading standpoint, you have to position yourself like it's October 1999," Jones said during an interview with CNBC this week.

To recap, the Nasdaq Composite COMP having already rallied that year, pretty much doubled from early October 1999 to the dotcom bubble peak in March 2000.

Jones's comments are catnip for bullish investors convinced that they have the ability to recognize when the bubble will burst, and therefore they can keep enjoying the rally. The Nasdaq is already up 19.2% this year.

However, it's not as simple as that, says Matthew Maley, chief market strategist at Miller Tabak. In an email shared with MarketWatch, Maley accepted that Jones's observations carry weight.

"Mr. Jones did not become a billionaire by being stupid, so these comments are something which have (correctly) received a lot of attention...especially since he indicated that investors should be set up for this kind of very bullish move," says Maley.

In addition, he noted that Jones wasn't just saying a "melt-up" is possible, like many are, but that it is probable.

But, crucially, it's important to recognize that the Nasdaq's surge in late 1999 through to its peak did not occur in a straight line. "In fact, there were quite a few rather large declines in the middle of that 6-month 'melt up' move!," Maley says.

And they were pullbacks of a magnitude that may have caused bulls to fear the good times were over.

The first thing he notes is that the Nasdaq's October 1999 rally started after it had just fallen 11%, using intraday metrics, in the middle of that month.

And there were three more declines of 13%-14% after the rally began and through that six-month period 25 years ago. "With this in mind, investors might want to be careful about assuming that a further rally in the stock market...even if it's a major one...will [be] without some scary declines along the way," he says.

Maley adds that at some point there will be a rush of data when the U.S. government re-opens and this may coincide with the new earnings season, "therefore, we could start to see some wild moves...in both directions."

"Thus, even if Paul Tudor Jones is correct...and the market does rally in a major way over the next six months...it could be a more volatile ride than some people are assuming right now. This will be particularly important to consider for those who are very active with their trading...and/or are more short-term oriented," Maley concludes.

The markets

U.S. stock-indices SPX DJIA COMP are fractionally higher at the opening bell as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is down, while oil prices (CL.1) dive on Middle East peace hopes and gold futures (GC00) are trading around $3,997 an ounce.

   Key asset performance                                                Last       5d     1m      YTD      1y 
   S&P 500                                                              6735.11    0.29%  2.24%   14.51%   16.52% 
   Nasdaq Composite                                                     23,024.63  0.79%  4.45%   19.23%   25.94% 
   10-year Treasury                                                     4.116      -0.50  4.60    -46.00   1.10 
   Gold                                                                 4010.9     2.53%  8.97%   51.97%   49.99% 
   Oil                                                                  61.08      0.63%  -2.43%  -15.01%  -19.09% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

U.S. economic data due Friday include the University of Michigan preliminary consumer sentiment survey for October, released at 10:00 a.m. Eastern.

Fed officials making comments on Friday include Chicago Fed President Austan Goolsbee giving opening remarks at 9:45 a.m., and St. Louis Fed President Alberto Musalem talking on the the economy and monetary policy at 1:00 p.m.

The Bureau of Labor Statistics will bring some furloughed employees back to work so it can publish the September consumer-price index, a key inflation report, an administration official said.

Venezuelan opposition leader Maria Corina Machado won the Nobel Peace Prize.

The U.K. will force Google to ease control over its search engine as the search site owned by Alphabet (GOOGL) becomes the first company to be given a special status under new digital laws that came into force this year.

China has launched a customs crackdown on Nvidia AI chips, according to a report from the Financial Times.

Applied Digital shares (APLD) are surging after the data center operator delivered better than expected results.

Levi Strauss & Co. shares (LEVI) are falling after the denim giant expressed nearer-term caution as it moves into the key holiday season.

Stock markets will be open on Monday but bond markets will be closed for Columbus Day/Indigenous Peoples' Day.

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The chart

Concerns about the U.S. economy seem to be growing in the market. Well, parts of the market. BTIG's technical strategist Jonathan Krinsky presents the chart above showing the Business Development Company exchange traded fund BIZD. BDCs are funds designed to invest in small and medium-sized companies, often those in distress. Such firms are very sensitive to economic downturns. Krinsky also shows the high-yield 5-year credit default swap - the cost of insuring against a company defaulting on its debt -which he takes as a proxy for high yield spreads. It's inverted in the chart and shows the correlation between the two assets has broken down. "Spreads have now widened three days in a row, and we think there is plenty of room for more widening given the sustained weakness in BDC/Private Equity and consumer land," says Krinsky.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   AMD     Advanced Micro Devices 
   GME     GameStop 
   PLUG    Plug Power 
   PLTR    Palantir Technologies 
   TSM     Taiwan Semiconductor Manufacturing 
   APLD    Applied Digital 
   TLRY    Tilray Brands 
   AMZN    Amazon.com 

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-Jamie Chisholm

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(END) Dow Jones Newswires

10-10-25 0932ET