This Chart Shows Worrying Dot-com Bust Deja Vu for James Paulsen

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(Bloomberg) -- Could history repeat? That should be the worry for investors who have piled in on Wall Street’s most popular trade the past year -- betting big on technology stocks.

One key metric for fund-manager veteran James Paulsen, who’s now an investment strategist at Leuthold Group, looks at tech stocks versus utilities -- the staid, non-cyclical, dividend-rich sector that’s been underperforming and unloved. The relationship between the two shows a potentially scary parallel to the dot-com bubble of the late 1990s, said Paulsen, who’s been in the markets since 1983.

“Similar to the late 1990s, investors today are following each other into the same popular investments and are also, en masse, abandoning discredited conservative alternatives,” said Paulsen. “Caution is increasingly being thrown to the wind and more aggressive behaviors are enhancing the chances of a mishap.”

Going long on tech has been a winning way to beat the market the past year -- returns were double those on the S&P 500 Index. Despite the slip-up on Monday, U.S. technology shares have risen 8 percent so far this year after their 37 percent gain in 2017. Utility stocks are down 5 percent year-to-date and rose just 8 percent last year.

While Paulsen correctly warned of the risks of an impending equity market correction back in November, and was named Businessweek’s most accurate forecaster in 2001, some other of his calls have been astray. In 2012 he said Treasury yields could rise to 3.5 percent on 10-year notes.

While tech’s outperformance doesn’t necessarily suggest a massive collapse is coming, it is a reminder that the character of the current bull market has changed, becoming more aggressive, according to Paulsen. The ratio can keep rising, but not much higher and not for much longer, he said in a note to clients.

“Investment risk is becoming concentrated, extended, and increasingly vulnerable to the bear’s bite,” he said.

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