Looking Back at 1994 and the Lessons It Has for Today
Do divergences in 1994 hold the key to what's next for stocks in 2026?
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Let’s talk about 1994. Because that was a year that tech stocks got knocked around pretty good. And they also diverged.
Let me state from the start, I don’t think this year, economically, is like 1994 because in 1994 the Fed was hiking rates, starting in February, which surprised the market. That is clearly not the case today.
But I saw many folks on Thursday noting the massive moves in stocks vs the relatively mild move (even when we were down) in the indexes. Or how one tech stock got clocked while another keeps going up. And that’s how I remembered 1994.
We’ll begin with a chart of Nasdaq itself. Look at the steep decline in March, after the rate hike. Down nearly ten percent in two weeks before we got a small rebound. It’s difficult for me to come up with tech stocks to show you because the stars of the day thirty years ago are mostly no longer around. For example, Dell was a big deal stock then, but the Dell of today is not the same. Compaq was a big deal stock then. It was swallowed up by Hewlett-Packard in the late 90s. Digital Equipment was another big deal name, but HP bought them in the late 90s as well.
Lotus was a big deal software stock that was bought by IBM in the late 90s. Motorola was a big deal semi. Can you believe that? So please indulge me with the names I have chosen to show you.
We’ll begin with Intel, which, shockingly, despite calls for its death for years, is still around. The slide in March was about 30%. Let’s remember, Nasdaq itself was just shy of 10%. But the shape is the same: both enjoyed a swift decline.
Now look at Microsoft. Where is the March decline? Nowhere to be found! In fact, MSFT was up in the month of March.
The next hit tech stocks took was June/July. That peak in early June arrived because Lotus (for those who don’t know, Lotus was the precursor to Excel spreadsheets) pre-announced a bad quarter, which took tech stocks down. You can see the 7% slide in June on the chart of Nasdaq.
This time though, Microsoft pulled back. Not a lot (about 12%). But here is the perfect example of one tech stock not acting like the other, and the Index chart looking quite different.
I think the reason it happens less now is because ten stocks account for 40% of the index, so the shapes of those names tend to mimic the index, but there really was a time that not all tech stocks moved in sync. And that’s where we are today.
I’ve been saying for six months now that there are divergences among tech stocks and among the Mag 7. There are even divergences among the semis. It has been a stock picker’s market. It is also still an Either/Or Market. Did you notice that as soon as tech/the indexes started rallying in the afternoon, the stocks that were up started to deflate a bit?
All in all, Thursday didn’t change much in terms of the indicators, but shake-ups are needed, and Nasdaq managed to miss going to seven straight green days.
