Northwestern Mutual Chief Strategist Believes This Market is Different Than 1999

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Northwestern Mutual Chief Strategist, Brent Schutte, believes market comparisons to the dot-com bubble are irrational.

Schutte isn't rating many tech stocks overweight at the moment due to their massive valuations compared to the rest of the market, but he believes it is different than the bubble the financial markets experienced in 1999. "I've done my fair share of comparisons to 1999," he said.

Schutte cited that the key difference between the dot-com bubble and the current market is interest rates. "In 1999 the 10-year and 2-year Treasury were at 6%. Today they're what, at 25 basis points and 1%? So the competing asset class is low, and the central bank is trying to keep it there," he said. This has led many investors to pour into stocks in search of any return since "risk-free" t-bills yield negative real returns at the moment.

Furthermore, Schutte doesn't see a massive crash on the horizon. However, he is recommending that investors reevaluate their current positions and rotate out of tech. He believes cyclical stocks are due for a major comeback that will come at a cost to tech stock with lofty valuation. He cited the Federal Reserve's forward guidance on inflation as a bullish sign for cyclical equities.

"They have staked their credibility on getting inflation above 2%, and they need that to occur," he said. "And so they're not going to stop prematurely. I suspect they'll keep rates anchored low, and they will continue buying bonds of some kind."

Next, Schutte cited the high probability of another round of stimulus from Congress. This would also bode well for cyclical equities. "We are going to get another aid bill," Schutte said. "I don't think you're talking about tax increases potentially until later in the year, if at all, because there are a lot of Democrats in the House who are up for reelection in wealthy suburban districts in 2023."

Lastly, Schutte cited the massive increase in consumer savings that will lead to a spending splurge once the economy reopens. "When you add that all up with what's on the consumer balance sheet with all the savings that are out there, you're looking at a pretty strong 2021," he said. "You're going to have a market that's going to have different leadership and that's more leveraged to early-cycle broad economic growth."

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