What Happened?
On Jan. 20, 1999, Federal Reserve Chairman Alan Greenspan issued a historic warning to Congress about stock market valuations.Where Was the Market?
The S&P 500 traded at 1,256.62 and the Dow Jones Industrial Average traded at 9,335.91.What Else Was Going On in the World?
In 1999, Ford Motor Company acquired Volvo. U.S. President Bill Clinton was acquitted of perjury and obstruction of justice charges after a five-week impeachment trial. U.S. average monthly rent was $645.Greenspan’s Warning
On Jan. 20, 1999, Fed Chair Alan Greenspan testified in front of the House Ways & Means Committee about the sharp rise in stock prices and the seeming disconnect between the equity market and underlying profit growth.In his testimony, Greenspan said investors were seemingly pricing in a much higher profit growth rate than recent corporate earnings reports had suggested.
“The recent behavior of profits also underlines the unusual nature of the rebound in equity prices and the possibility that the recent performance of the equity markets will have difficulty in being sustained,” Greenspan said.
At the time, the S&P 500 had risen 61.7 percent over the past two years, while the tech-heavy Nasdaq Composite was up 77 percent in that stretch.
Frenzied dot-com stock buyers mostly ignored Greenspan’s warning, and the Nasdaq gained 7.32 points on the day of his testimony to close at a record high of 2,415.49.
Greenspan’s warning eventually proved to be a wise one, but he was more than a year early. The Nasdaq didn’t reach its dot-com bubble peak until March 2000.
