I last issued this analysis/comparison six months ago. This is a current update.
Recent patterns in the stock market are eerily similar to what happened in the late 1990’s during the dot-com bubble. This chart compares the price movements for the Nasdaq in the late 1990's (dot com bubble) to the current period. If we are in an AI bubble, I want to see how the current period compares to the last big tech bubble.
Up until July of 2026, the price trends were very similar. In recent months, the 2026 trend has continued higher compared to the 1998 period where the Nasdaq experienced a large correction (-30%).
The 1998 bear market was caused by a financial crisis in Russia followed by major losses at a large hedge fund called Long Term Capital Management. The Fed ended up bailing out LTCM and lowering rates to turn the situation around.
In 1998, the Nasdaq bounced back rapidly and growth accelerated rapidly over the subsequent four months. The Nasdaq increased by 77% from the beginning of October 1998 to the beginning of February 1999.
The 18 months between October of 1998 and March of 2000 represented the height of the dot-com craze where the Nasdaq grew by 250%. Beginning in March of 2000, the Nasdaq went on to lose 78% of it's value.
It took until 2015 for the Nasdaq to recover its losses.
The question of everyone’s minds right now is “What happens next in this market”?
KEY DIFFERENCES NOW vs. THEN
Based on the graph, the current cycle is running ahead of the dot-com cycle of the late 1990's.
I do not, however, expect the current AI cycle to match what happened in the late stages of the dot-com bubble.
The late 1990s period was a true bubble.
Prices rose solely based on the promise of the future of the internet.
Every dot-com stock was bid up to stratospheric heights.
The price gains were NOT driven by profit growth. Profit growth in the late 1990s was only average.
The current period is being supported by exceptional profit growth.
Corporate profit as measured by the S&P 500 grew at twice the normal rate in 2025 – mid-teens vs. the typical 8%.
2026 estimates for profit growth are expected to be more than 30% - three times the typical growth.
Profit growth is being driven by the tech companies – their profit growth is much higher than 27%.
This does not mean that I think we can escape a crash this time around.
Any crash this time won't be due to crazy valuations. The risk this time is that the massive AI investments fail to deliver returns to justify the spending.
Demand and revenues from AI are still growing, but will they grow fast enough?
AI pricing is based on the cost of tokens. A token is a way to measure AI computer usage. The trend in token prices is down. Some of that is due to efficiencies and some is due to Chinese competition. Efficiency is a good thing. Competitive pricing pressure is a bad thing for the US AI companies.
If we can believe the AI companies, they are saying that their most powerful and sophisticated models already exist and that they will be rolled out over the next two years. Since it takes time for companies and individuals to implement new technologies and to measure the impact, I don't think we'll know for two to three years if the AI reality matches the hype.
The market is currently in a cautious, wait-and-see mode regarding AI investments. I tend to use the semiconductor index fund (SMH) and a couple of other ETF's to track the AI segment of the stock market. Over the last six months, prices for those funds have been basically flat.
New breakthroughs and use cases for AI would drive stock prices higher while slower growth in AI demand would result in a correction. The good news is that at current stock price valuations, the future direction will be driven by actual results and not hype.
If the future data points on AI turn negative, the magnitude of any stock market decline will be driven by the financial contagion - the impact on the credit markets.
I will keep my investors situated aggressively in stocks if the trends support it. My Growth & Safety system is designed to win in up markets and to win in bear markets as well. If the worst case scenarios unfold, we move out of stocks and into income generating assets. We earn interest as we patiently wait for markets to recover.
We follow a data-driven, disciplined process that is not influenced by fear or greed. You should too.
In the last six months, the tech-heavy Nasdaq index has grown by a healthy 6.5% while my Growth & Safety fund has performed slightly better with an increase of 7.5%. My Growth & Safety system is unique in that it can capture stock market upside in good times and avoid major losses during market crashes.
If you would like to learn more about my unique investing system and how to invest in my Growth & Safety fund, click below to schedule a quick call.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Retirees often revisit their living situation and housing expenses.
The home they own might be too big, too expensive, or too time-consuming to maintain. Many retirees begin to think about downsizing.
These housing decisions can be complicated and involve a lot of emotion. Moving to a new home is a big deal, especially if you have lived in your current home for many years.
Today, I want to focus on the financial considerations retirees face when deciding whether to stay in their home, rent, or downsize to a condo.
The emotional and personal factors are just as important, but they are unique to each person.
For this analysis, I am using estimates and averages. Housing costs vary widely depending on where you live, so you will need to plug in your own numbers to calculate your actual costs. The averages, however, provide a useful illustration of the financial differences between the three scenarios: staying in your home, renting, or downsizing to a condo.
There is one important part of the financial calculation that most people overlook: the opportunity cost of the equity in your home.
If you sell your home and rent an apartment, you can invest the proceeds from the sale. If you downsize to a condo, you can invest the difference between the amount you receive from selling your home and the cost of purchasing the condo.
That investment opportunity can have a significant impact on the overall financial picture.
THE ASSUMPTIONS
Here are the assumptions I used for this analysis. Again, housing values and expenses can vary significantly depending on where you live. I live in the Northeast, where home values tend to be relatively high.
Home value: $800,000
Condo value: $600,000
Mortgage: None — the mortgage is assumed to be paid off.
Selling costs: 5% of the sale price of the home.
Utilities: Lower utility costs are assumed for the apartment and condo due to their smaller size.
Here are the estimated monthly costs I used.
| OWN HOUSE | RENT | OWN CONDO |
VALUE | $800,000 |
| $600,000 |
mtg/rent/condo fees | — | $3,000 | $400 |
re taxes | $550 | — | $400 |
home ins | $200 | — | $100 |
maintenance | $400 | — | $200 |
heat | $600 | $450 | $450 |
elec | $150 | $100 | $100 |
water | $75 | — | $45 |
Total Expense | $1,975 | $3,550 | $1,695 |
As you can see from the table, the monthly housing expense is significantly higher for the apartment rental—approximately $3,550 per month compared with $1,975 for the house. The condo scenario is slightly less expensive than staying in the house, at approximately $1,695 per month.
But this is only part of the story.
INVESTMENT GAINS
The expenses above probably aren't surprising. The concept I want to introduce—and one that many people overlook—is the opportunity cost of the equity in your home.
Your home may be worth $800,000, but that $800,000 is not producing investment income for you while you continue to live in the home.
When you sell the house and move into an apartment, you can invest the equity that is released from the home, after selling costs. When you downsize to a condo, you can invest the difference between the value of your old home and the cost of the new condo, again after considering transaction costs.
For this example, I am assuming my Growth & Safety investment strategy generates an average annual return of 12% to 14%. I am using 12% for this analysis to be somewhat conservative. Most of you are using my Growth & Safety system so you will get these returns.
If you are a more typical retirement investor earning 7% per year, you can substitute 7% for 12% and calculate a different result.
The rental scenario
In the rental example, selling the $800,000 home and allowing for 5% selling costs would leave approximately $760,000 available to invest.
At a 12% annual return, that could generate approximately $91,200 per year, or about $7,600 per month in investment gains on average.
The rental housing expense is approximately $1,575 per month higher than staying in the house. However, the $7,600 of potential monthly investment gains more than offsets that additional expense.
That produces a potential net financial advantage of approximately $6,025 per month, or $72,300 per year, compared with staying in the house.
The condo scenario
The condo scenario is different.
If you sell the $800,000 home and purchase a $600,000 condo, you have approximately $160,000 of equity that can potentially be invested, after accounting for transaction costs.
At a 12% annual return, that $160,000 could generate approximately $19,000 per year, or $1,600 per month.
In addition, the estimated monthly cost of owning the condo is approximately $300 less than the cost of remaining in the house.
That means the condo scenario provides a potential financial advantage of approximately $1,900 per month, or $22,500 per year, compared with staying in the house.
| OWN HOUSE | RENT | OWN CONDO |
Total Expenses | $1,975 | $3,550 | $1,695 |
Equity Income | — | $8,000 | $1,600 |
Mthly exp/income | ($1,975) | $4,450 | ($95) |
Annual exp/income | ($23,700) | $53,400 | ($1,140) |
Difference vs. house |
| $77,100 | $22,460 |
HOME VALUE APPRECIATION
I did not include future home appreciation or capital gains taxes in this analysis.
It is reasonable to assume that home values could appreciate over time. But appreciation is different from investment income. Unless you sell the home or borrow against its equity, the appreciation does not provide you with cash flow that you can use during retirement.
Those of us who purchased homes in our twenties or early thirties have benefited from significant appreciation over the past 30 or 40 years.
But as you enter your sixties and seventies, the financial priorities can change. At that point, many retirees are more concerned with generating income, preserving capital, and enjoying their retirement than maximizing the future value of their home.
That doesn't mean home appreciation is unimportant. It simply means it should be considered separately from the income-producing potential of the equity tied up in your home.
RENTING VS. OWNING
Renting is very different from owning.
Who you rent from is important, and rents generally increase over time. Some people also prefer the security and stability that comes with owning their home.
I haven't necessarily convinced my wife of the benefits of renting!
Personally, I like the freedom of renting and not having to take care of everything that comes with owning a home. Some people enjoy home maintenance projects. I don't want to spend any of my precious time left on this earth dealing with home repairs and maintenance.
I also like the flexibility that renting can provide.
The rental scenario potentially creates significantly more investment capital and cash flow each month. It can also make it easier to spend part of the year somewhere else.
For example, rather than maintaining a second home, you could rent a place for a couple of months during the winter in a warmer climate—or even spend several months in Italy.
That's one of the things I find most appealing about this strategy. You are not just changing your housing expense; you may be creating more financial flexibility and more choices for how you spend your retirement.
A PERSONAL CHOICE
Where you live in retirement is a very personal decision. It involves financial, emotional, family, lifestyle, and practical considerations that only you can evaluate.
There is no single right answer.
Some people will want to stay in the home where they raised their family. Others will want to downsize. Some will prefer the flexibility of renting.
Being the investment guy, I simply wanted to provide a different way of looking at the financial side of the decision.
Don't just compare your mortgage, rent, taxes, and maintenance costs.
Look at the equity tied up in your home and consider what that money could potentially do for you if it were invested.
That opportunity cost can be a very important part of the retirement housing decision.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Updated: Oct 8
Interest rates are rising to levels not seen in decades. Inflation continues to run ahead of the Fed target of 2%. The Fed has recently entered a tightening cycle with the recent rate increase of one quarter of a percent. Another increase is expected sooner rather than later.
Consumer confidence just dipped to a 12 year low. Energy prices are 30% to 40% higher than they were a year ago. Prices at the gas pump are creating pain for consumers.
More and more people are now talking about a significant market correction as a result.
Yet, the stock market is still hovering near all-time highs. How can this be?
Well, there is lots of good news. And some of it is extraordinary.
First, corporate earnings are growing at record levels. Earnings are the main driver of stock prices. The table below compares recent earnings growth of the S&P 500 to both 10-year and historical averages.
I also include a column showing the median earnings growth of the 500 companies in the index. Since the S&P 500 has always been “top-heavy” with the biggest and fastest growing companies driving the total index, the median is typically 40% below the total number for the S&P 500.
The median statistic provides a better indication of what is happening in most companies. In recent years, the mag-7 stocks have been responsible for much of the gains in the entire S&P 500.
Earnings over the last ten years are roughly 40% higher than the historical average (50 years). The earnings data supports above average returns over the last ten years. The S&P 500 index has gained an average of 15% over the last ten years – 50% more than the earnings growth rate would support.
The 2025 results are even better - another 10% above the strong average returns for the last ten years (11% vs. 10%).
Earnings growth in 2026 has accelerated even further. Adjusted earnings growth for the first half of 2026 is over two times the 2025 level. In the past, S&P 500 earnings have only grown at rates above 20% following years of earnings decreases. The 26% growth rate in the first half of 2026 is unprecedented.
EARNINGS GROWTH - S&P 500
Period | S&P 500 | Median Company |
50-Year Average | 7% to 8% | 4% to 5% |
10-Year Average | 10% to 11% | 6% to 7% |
2025 | 11% to 12% | 8% to 9% |
First Half 2026 | 25% to 27%* | 12% to 14% |
Actual earnings growth for first half 2026 is over 40% but this includes some large capital gains for both Amazon and Alphabet. The adjusted figure removes these one-time events.
Notice how the median earnings growth for the S&P 500 is also accelerating to record levels in 2025 and 2026. It is not just the big tech companies that are generating record profits. Most of the companies in the S&P 500 are posting huge productivity increases.
This productivity growth is not due to the impact of AI whose productivity effects have yet to be felt in a material way for large US companies. If the AI optimists are correct, corporate productivity and profits will increase significantly going forward. Jobs and employment would also be affected, however.
The impact of AI is affecting revenue growth and GDP growth due to the massive spending on AI infrastructure. If that spending slows, the overall economy and the stock market will take a big hit. But there are no signs of AI spending slowing at this point.
Keep an eye on reports about the impact of AI on business productivity. AI spending is currently based on the expected future impact of AI. We are all waiting for proof - actual use cases demonstrating a return on AI investments.
CONCLUSION
One could argue that the stock market should be rising even faster than it is at present. Earnings growth indicate that stock prices could be rising by 25% or more.
The war, oil prices, inflation and interest rates are holding back stock prices.
If a diplomatic breakthrough happens and the fighting stops and oil begins to flow again, the market could see big gains from here. There are no easy answers to the crisis in the Middle East, unfortunately.
The medium term to long term outlook for stocks is highly dependent on AI spending, AI benefits and the situation in the Middle East.
As always, your investments need to be positioned for all market scenarios – rapid growth, market downturns and flat markets. My Growth & Safety fund wins when markets climb and when markets decline. If you would like to learn more about how my strategy could fit into your portfolio, click the link below to schedule an appointment.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
%20(1).png)
