For now, the 1998 analog continues to hold, and shows a textbook pattern of a normal 10% correction giving way to an impulsive 20% decline, then rebounding but initially failing at the old breakdown point. From there the index retested the lows, held, took out the retracement high, and with the help of three rate cuts from the Greenspan Fed, was off to the races.
While fundamentally 1998 was quite a different cycle from today, it’s worth noting that the valuation backdrop is similar. At the cycle peak in July 1998 the P/E multiple was 25x, and from there it fell to 20x at the low. A cycle bottom P/E of 20x is historically very high, and I remember that at the time many investors missed a good chunk of the bull market because they couldn’t accept that a new bull could start at such a high multiple. They ended up chasing the bull all the way to its
dot.com bubble extreme in 2000. This is why it’s important to take a holistic approach to market analysis, rather than relying solely on earnings and valuation.