Sell in May and Go Away vs QQQ to Labor Day

History doesn’t repeat, but it rhymes sometimes. Like I just did there. And when it comes to the history of the Nasdaq 100 Index, it is hard to escape the similarities between the bursting of the dot-com bubble in 2000 and the environment we have today.

Critics of that view will quickly highlight that conditions were different in many ways. Of course they were, it was nearly a quarter-century ago. But if one were to assemble a checklist to at least allow for the possibility that the market cycle is getting tenuous, a lot of boxes would be filled in by now.

Election year? Check. Sharp runup in the Invesco QQQ Trust ETF (QQQ) since last Halloween? Check. Investor behavior invoking the old Wall Street expression, “animal spirits.”

To that end, just last week we had a fellow return to the scene whose nickname is from an animal. Of course I’m talking about Roaring Kitty. Meme stocks, AI-themed companies, and ETFs, and even the infrastructure spending boom in the US have returned excitement. But excited investors can sometimes be a sign of a different type of thrill ride to come.

And the calendar does not need to be in sync, and rarely is when we review specific historical events versus current conditions. In 2000, QQQ rocketed higher through late March, up an astonishing 29% year to date through that year’s first 12 weeks.

The Nasdaq is tame today versus that time in history, since the top-heavy index is full of highly profitable companies, albeit with questionable valuations, which may assume perfection about the future impact of AI on profits and revenue. So QQQ’s more than 30% upturn since last October is, roughly speaking, a similar event. The October to March move during the 1999-2000 period was an uncanny 79%.

QQQ From Memorial Day to Labor Day

But the market fell sharply in the next two months and was shockingly down 18% year- to-date from that first summer holiday, which seemed unthinkable earlier in the year. Since we are at that time of year now, and on the surface, there are similarities to that time, knowing what happened next is worthwhile.

From Memorial Day through Labor Day, 2000, QQQ rose by 32%. The S&P 500 gained about 11%, which indicated just how unusual that period was for QQQ then. Still, the goal of reviewing this history is less about magnitude and more about direction. And the direction was such that investors who “sold in May and went away” left a lot on the table.

Then as now, there was a U.S. Presidential election approaching. That one turned out to be the one between President George W. Bush and Al Gore, in which the winner of the nailbiter was not determined for some time after election day.

Let’s not even go there! And I say that as a resident of Florida, which 24 years ago was at the heart of the turmoil. So, we’ll focus instead on what occurred in 2000 through election day, and in the months afterward, once the election mess was resolved.

QQQ From Labor Day to Election Day

As it turned out, Labor Day was the end of the party, the end of a record-smashing bull market that began in 1995, but really dated all the way back to just after the 1987 crash. This again is not dissimilar to the current period, in which we’ve had generally strong broad market conditions, with a quick trio of 20%-33% drops along the way.

From Labor Day through the election in 2000, QQQ dropped 20%. And from election day through the end of the year, it crashed another 29%, for a 43% total decline from Labor Day through the end of the calendar year. The S&P 500 fell 13% during that latter time frame, though it is worth noting that the overlap between that index and QQQ was much less than it stands now.

For the full year 2000, QQQ lost 36%, the first of what would be three consecutive 30%-plus down years. The S&P 500 lost 10% in 2000, but it to fell the following two years, dropping around 50% peak-to-trough over that time, before a new bull market finally started in the spring of 2003. Not that anyone noticed it, as they were still licking their wounds like a kitty that lost its enthusiasm for roaring.

This is just history. But all investors can learn from it, either on their own or from their fiduciary advisors reminding them what is possible. Those of us who lived and invested professionally through that time will never forget it. But many of today’s investors have no recollection of it. They were not investors then. This is why, as goes another expression from philosopher George Santayana, “those who ignore history are doomed to repeat it.”