Is a repeat of the dot-com bubble imminent? Research firm points out a terrifying coincidence.

While the S&P 500 continues to reach new highs, concerns are growing that a sharp correction is imminent, sparking a replay of the dot-com bubble. Citrini Research notes that the current market situation bears striking resemblance to 1998, before the dot-com bubble burst. The breadth of the rally is also the smallest since late 1998, creating a disturbing sense of urgency.

Citrini noted on Substack on the 28th that high prices and investor complacency have increased the likelihood of a correction in the US stock market. The Chicago Board Options Exchange (CBOE) Volatility Index, considered a "fear gauge" for the US stock market, has remained below its long-term average of 19.5 since late June and has been on a downward trend since rising above 50 in early April.

The 1998 summer pullback in the US stock market, which saw the S&P 500 drop nearly 20%, was seen by some as a prelude to a larger correction. Citrini said, "The depth and breadth of the 1998 correction were almost identical to the 2025 correction, and the rebound to new all-time highs was also nearly identical."

The breadth of the rally, measured by the percentage of S&P 500 companies trading above their 200-day moving averages at record highs, has been at its weakest level since late 1998. Citrini researchers note that at the 2000 peak, only 35% of the S&P 500's components were trading above their 200-day moving averages.

"If the U.S. stock market continues to rise but breadth is weak and continues to shrink, it could indicate that this long-term bull market has entered a 'bubble phase,'" Citrini said.

However, a significant decline in the US stock market may require additional concerns. Citrini pointed out that margin debt growth rates in the early 2000s and mid-2007 were significantly higher than those of the S&P 500. For example, from early 1999 to early 2000, margin debt grew by over 75%, while the S&P 500 rose by less than 25% during the same period. However, the current rate of increase in margin debt relative to the stock market remains modest.

Citrini said: "The key point is that in the final stages of a bull market that leads to a peak, margin debt tends to increase rapidly (and at a rate much faster than the overall market) as investor confidence and leverage increase, indicating that the market has entered a period of irrational exuberance."