In a note to clients this week, UBS analysts compared the current bull market to the 1990s bull run, highlighting some similarities.
The firm explained that as the Fed finished an aggressive hiking cycle in Jan 1995, US stocks began a bull run, delivering 27.9% annualized returns over six years before the bubble burst in March 2000.
"The Fed is close to dovish pivot today and semiconductors companies tell us that we may be at a productivity tipping point in AI," wrote UBS.
"The 90s bull run saw two phases: a broad, steady climb from early '95 to mid '98, and then a narrower, more explosive phase from late '98 to early '00," added the bank. Today's sectoral "patterns, narrowness, correlations, are similar to the second phase of the market; valuations are not far off either."
However, analysts believe the current rally is not the anatomy of a bubble as there are "notable differences" between then and now in realized margins, earnings, free cash flow, in signals from options markets, and in IPO/M&A activity.
However, UBS also believes that "today's macro doesn't support a sustained bull run," as the lack of a bubble doesn't automatically imply the market will rise for several years.
"Difficult to measure though it is, productivity growth looks nothing like it did in the 1990s," stated UBS. "Sure, this can change, but data today on electronics and info tech orders, capex intentions and actual capex doesn't at all suggest the capital deepening associated with a productivity boost."
Analysts believe the economy is late cycle today, with its current configuration resembling how it stood at the end of the 1990s bull run more closely than how it stood at its beginning (early 1995).
"Real disposable income growth is weak and likely to get weaker. These variables need to start looking up for the bull run to persist," concluded the bank.