As a result, the gap between the market’s leaders and laggards is smaller. During the stretch that lasted from March 1995 to March 2000, computer and software makers surged 754%, compared with 200 percent in the next-best industry, banks. By contrast, since March 2009, consumer-discretionary shares have jumped 324%, banks are up 259%, and industrial companies have risen 243%. The group with the smallest increase, phone companies, is up 68 percent.
“Confidence drives the bull,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, said by phone on March 5. His firm oversees about $360 billion. “Most people started this recovery with absolutely no confidence in the future. What we see is a return to health.”
Eighteen companies in the S&P 500 have advanced more than 1,000 percent since 2009. Among the top five, none is a technology maker. General Growth Properties Inc., a real estate investment trust, Regeneron Pharmaceuticals Inc., producer of eye drug Eylea, hotel franchiser Wyndham Worldwide Corp., CBS Corp. and insurer Genworth Financial Inc. all generated bigger returns than the next best performer, Priceline.com Inc.
During the 60 months through March 2000, 12 stocks increased by that much or more and all except four were related to technology. Cisco Systems Inc., the world’s biggest maker of network routers and switches, and Qualcomm Inc., a manufacturer of mobile-phone chips, soared more than 3,500 percent.
Internet and computer shares attracted close to every investor dollar that was sent to specific industries back then. Mutual funds and ETFs tracking technology companies absorbed $71 billion in 1999 and 2000, or 85% of the total that went to sector-focused funds, data compiled by Morningstar show.
“It was neighborhood parties, everybody talking about dot- com stocks they own,” David Chalupnik, the head of equities at Nuveen Asset Management in Minneapolis, said in a March 5 phone interview. His firm manages about $115 billion. “Today, sentiment is improving, but the market overall still is not front-and-center with people.”
Investors burned by two crashes in eight years took longer to get hooked on equities during the current bull market. After pulling $300 billion from mutual funds and ETFs that buy American equities from 2008 through 2012, they’ve since deposited almost $170 billion, according to data compiled by Bloomberg and the Investment Company Institute.
At the same time, the Nasdaq 100 Index (CME:ND), tracking some of the largest technology companies such as Microsoft Corp. and Amazon.com Inc., has advanced 255% since 2009, recouping about 75 percent of the losses it incurred during the bubble burst.
Pharmaceutical and hospital stocks led gains in the S&P 500 this year, jumping 7%, as investors bet new drugs and President Barack Obama’s health-care overhaul will boost profits for companies such as Tenet Healthcare Corp. and Pfizer Inc.
Health-care ETFs drew $4.6 billion, almost half of the $10 billion that sector-focused funds added through March 6, data compiled by Bloomberg show. Real estate and energy funds got $3.1 billion and $2.5 billion, respectively. Technology ETFs absorbed $1.5 billion while those investing in consumer- discretionary companies saw the biggest withdrawals among 12 sectors tracked by Bloomberg, with outflows totaling $2.2 billion.
While the S&P 500’s multiple of 17 times reported earnings is close to the average since 1937, it’s about 40 percent below where it was in 2000, data compiled by Bloomberg and S&P show.
The lower valuation reflects faster earnings expansion. Profits for S&P 500 companies have climbed an average 21 percent a quarter since 2009, almost double the growth rate during the dot-com boom, according to data compiled by S&P.
“Valuations are pretty reasonable,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC, which manages $414.7 billion, said by phone March 5 from Boston. “They aren’t cheap any more, but bull markets never end with valuations at the average. It does mean that more of the gains in the market have to come from earnings.”
The Nasdaq Biotechnology Index is up 14% this year and less than a third of its 122 companies earned any money in the last 12 months. Unprofitable firms such as FireEye Inc., an Internet security provider, and Zynga Inc., a developer of social video games, are leading gains in the Russell 1000 Index.