Even the biggest techs have been big winners. Shades of the dot-com boom?

According to Deutsche Bank’s calculations, from the start of 2023 through Thursday, the S&P 500 was up 8.1%. For all of 1999, the spread between the two measures was 9.3 percentage points, just exceeding the 16.3 percentage-point spread in 1998.

Doug Kass, managing director of Sebrez Partners, a longtime friend of this column and a Palm Beach flyer, says the market’s strength in a few religions is reminiscent of the Nifty 50 blue chip era. 74.

Moreover, the current market violates the investment law from the famous Bob Farrell, head of market analysis at Merrill Lynch, who often quotes, “Markets are too strong when they are broad and too weak.” Blue-chip names.

Financial conditions are reminiscent of the end of the last century. Then, the Federal Reserve was tightening policy, raising the federal-funds target from 4.75% to 6.50% in mid-2000. Over the past year-plus, the central bank has raised the federal funds target rate sharply from near zero to 5%-5.25%, shrinking its balance sheet to further tighten policy.

Rising interest rates have made stocks more expensive relative to bonds since October 2007 before the 2008-2009 financial crisis, Cass added. Additionally, as the Fed raises rates, estimates for 2023 S&P 500 earnings are down more than 10%, he wrote in an email.

One of the issues raising equity that seems mercifully close to being resolved as we head into Memorial Day weekend, surprisingly, is the debt ceiling dispute. While Uncle Sam couldn’t raise loans, he was emptying his piggy bank, which injected liquidity into the financial system. Raising the debt ceiling would allow the federal government to spend billions in treasury bills to fill its coffers, eliminating the money supply. (For more on this, see The Trader’s column, “Nasdaq Is Crushing the Dow. Can It Last?”)

At the same time, expectations about the Fed’s rate changes have changed significantly. Further increases are now expected at the upcoming meetings of the Federal Open Market Committee; Previously, the path did not wait for any hikers. Indeed, the prospect of an earlier decline has dimmed.

According to the CME FedWatch site, the odds of a quarter-point hike at the June 13-14 FOMC meeting rose sharply to 66.5%, as of Friday, from 17.4% just a week ago. The odds of at least one hike at the July 25-26 meeting were 78.9 percent, down from 20 percent a week earlier. At the end of April, the market actually saw a 43% downside chance.

Improving economic conditions, steady inflation and a declining risk of further regional bank failures have changed expectations. That’s evident in the two-year Treasury yield, which rebounded to 4.56% Friday in early May from more than 5% to 3.80% in early May, before Silicon Valley Bank’s collapse in March.

Key data reports—especially May’s employment release Friday—should take center stage during the upcoming holiday short week. The consensus among economists is for another strong increase in nonfarm payrolls: 190,000. At the same time, inflation showed little signs of easing. Fed Chairman Jerome Powell’s favorite gauge of inflation — the distribution of personal consumption of major services, excluding housing — has clipped 4.3% since January and risen 4.5% over the past 12 months, according to Brean Capital.

With inflation well above the Fed’s 2% target, unemployment at historic lows and major stock indexes near record highs, there’s little reason not to expect a pick-up. The party didn’t end in 1999, but it did eventually.

Write Randall W. Forsyth at randall.forsyth@barrons.com