Brewing War, Soaring Gold, and Dollar Weakness: The Early 2000s Market Playbook Returns

• Macro investors feel early-2000s vibes amid parallels between today and the post-dot-com era

• We outline why diversification across asset classes can work now just as it did more than two decades ago

• Investors must follow the forces and position their portfolios ahead of key turning points

History doesn’t repeat, but it can certainly rhyme. Indeed, macroeconomics is shaped by cycles, and while its challenges and opportunities mark each, the forces that promote bull and bear markets tend to reappear given enough time. The current period shares some of the same features as the early 2000s, a time when investors were on edge following the burst of the dot-com bubble. Is it a perfect parallel? Of course not, but with each passing data point, there are lessons to be learned from all that transpired a quarter century ago.

Back then, geopolitical tensions in the Middle East were escalating, the US dollar was weakening, gold and oil prices were climbing amid uncertainty, and tech stocks had just come off one of the most incredible bull runs of all time. Fast forward to 2025, and the geopolitical landscape feels eerily familiar. The US stepping into the Israel-Iran conflict reeks of the US’s involvement in geopolitics during George W. Bush’s early years in office, oil prices have bounced sharply, gold is in vogue, the dollar is down, debts are rising, and equity valuation concerns are rampant. 

To be clear, it’s not the exact same macro backdrop. New risks have emerged, such as a much more dire US fiscal situation, while hope abounds surrounding the promises of AI. Moreover, household and corporate balance sheets are robust compared to non-government finances of the early 2000s. 

Allio embraces what history teaches. We study cycles to identify emerging risks so that investors can position themselves for what comes next. It’s all about thinking big and spotting trends in the global markets. We’ll lay out the similarities between today’s investing environment and that of the early 2000s and call on investors to adopt a dynamic macro portfolio.

1. Geopolitics: Conflict and Uncertainty Return to Center Stage

The primary macro force that molded markets more than two decades ago was geopolitics. Then, the world was reeling from the 9/11 attacks, and nobody knew how the decade would unfold—would the same US exceptionalism that prevailed in the go-go ‘90s return? Would globalization cause other world powers, like China, to wield influence? Would a surging euro currency promote growth across the pond? These were all unknowns, but the immediate geopolitical focus was on the Middle East.

The US-led invasion of Afghanistan in 2001 and Iraq in 2003 heightened fears of supply disruptions, sending oil prices soaring from around $20 per barrel in 2001 to nearly $70 by 2005. Jump ahead to today, and WTI and Brent crude are precisely where they were two decades ago, and we find ourselves unclear as to what will play out in the region. 

The Israel-Iran conflict may escalate into a broader regional war, and President Trump’s June 2025 decision to drop bombs on three Iranian nuclear sites stoked fears that another endless war could ensue. 

WTI Crude Oil 2000-2008: From $17 to $147

Source: Stockcharts.com

Elsewhere, the Russia-Ukraine saga persists, while tensions between the US and China have only grown colder over recent years. Geopolitics is not a hypothetical or contingent concern—it's a clear and present danger. 

For investors, it’s important to remember that events like the onset of a war are often not a bearish volatility catalyst. Yes, the VIX might spike, and oil prices can shoot higher, but such dramatic price action is often short-lived. Historically, certain sectors of an economy, such as industry and materials, have benefited from the increased demand that can accompany a conflict. Recall that the S&P 500's bear-market dip in the early 2000s coincided with the start of the war in Iraq.

Hence, markets don’t always react to conflict the way you’d expect. Historically, geopolitical shocks trigger a short-term pullback, followed by a relatively swift recovery. But repeated geopolitical upheavals can wear down investor confidence, especially when they coincide with fragile economic conditions. Today’s environment is a potent cocktail of conflict, lingering inflation risk, and a Fed that is reticent to cut rates. All of which could amplify the impact of macro headlines.

2. A Weakening Dollar: Structural or Cyclical?

Perhaps the most striking similarity between now and the early 2000s is the trajectory of the US dollar. More than 20 years ago, the greenback had just peaked after a massive bull run during the dot-com boom. As domestic growth slowed and deficits widened, the dollar weakened throughout the decade, boosting international equities and commodity prices. 

The buck’s rise stopped at the turn of the millennium. Technical analysts call it a triple top—the US Dollar Index (DXY) failed to climb above the 121 mark on a trio of occasions from October 2000 to January 2002. The subsequent fall was fantastic—if you were short. 

Between early 2002 and 2005, the dollar lost more than 30% of its value compared to a basket of other currencies. Its drop was not done. Despite a mid-decade recovery, the cyclical low was not notched until 2008, immediately before the Great Financial Crisis (GFC). 

US Dollar Index 2000-2008: Historic Bear Market from Above 120 to 70

Source: Stockcharts.com

So, is today’s dollar drama overdone, or is it the start of a comparable collapse? While the media pounces on the narrative of the death of US exceptionalism, the DXY is only 10% off its early 2025 peak. What’s more, it’s near the same level seen in 2023; we don’t see the dollar’s giveback as a sign of a structural shift. That could change depending on how macro events transpire, but the notion of modern de-dollarization is overplayed in our view.

The dollar’s recent moves bring about flashbacks to the post-dot-com bust, though. Today’s twin deficit problem—trade and fiscal—call into question its safe-haven status, much like what was seen more than two decades ago. Should the Fed resume its rate-cutting cycle, all eyes will then be on commodity prices. Remember that Chair Powell and the Federal Open Market Committee cut interest rates by a full percentage point in late 2024. Expectations are for future eases, which could pressure the dollar’s value once more. 

In the here and now, the dollar’s muted safe-haven response to the latest Middle East flare-ups suggests deeper concerns, perhaps reflecting the US’s growing fiscal imbalances and perceived decline in geopolitical dominance. A softer dollar boosts non-US assets and increases the appeal of gold and oil—two themes playing out again this year.

3. International Stocks Are Back in the Spotlight

The early 2000s gave birth to one of the greatest bull markets among foreign equities. The BRIC nations (Brazil, Russia, India, and China) thrived amid globalization and a plunging dollar. Capital flows favored resource-rich nations, and there was a sense that the new century would usher in a new dawn across emerging markets. Additionally, the euro’s early rally seemed to cement its position among other key currencies, adding confidence to the European bourses (Germany, the UK, and France).

International Stocks & US Stocks 2000-2007: EM (Black) & DM (Blue) Beat US (Red)

Source: Stockcharts.com

Again, it’s not a perfect echo, but international stocks’ comeback of late, both on an absolute basis and relative to the S&P 500, harkens back to that previous era. In 2025, many investors are again looking abroad. Year-to-date, developed international markets and emerging markets have outpaced US stocks, helped by currency tailwinds, attractive valuations, and much more accommodative monetary policy—something President Trump has been vocal about. What’s different this time? AI. 

The US is the cradle of capitalism, and AI resides within our borders. Perhaps the starkest difference between then and now is that the late ‘90s was a classic bubble. Valuations were stratospheric, optimism was at a fever pitch, retail investors were gung-ho on stocks, and mini-bubbles were everywhere, from telecom stocks to Beanie Babies. 

By contrast, today’s Magnificent Seven stocks sport massive recurring revenue, high collective earnings, and free cash flow. That should help support the S&P 500 this time around, as opposed to the glaring profitability air pocket left in the wake of the dot-com bust.

The S&P 500 remains expensive across valuation metrics, though. A price-to-earnings ratio north of 20 does not scream value, while international developed and emerging markets sport P/Es in the mid-teens and lower. Foreign dividend yields are much loftier, too. 

S&P 500 Valuation Metrics Over Time: Differences Now vs Then

Source: J.P. Morgan Asset Management Guide to the Markets

Our view? Ex-US stocks may provide solid returns going forward, but we don’t see a lost decade ahead for domestic equities. The big risk now is not necessarily a tech bubble bursting but a market that’s priced for perfection in an imperfect world. Much like the early 2000s, the combination of high valuations and macro instability makes this a dangerous time for complacency and the ideal time for dynamic asset allocation strategies.

4. Gold’s Golden Era—Again

What makes comparing regimes so tricky is that macro conditions never perfectly match. There are also structural differences that must be acknowledged. It’s sort of like comparing Nikola Jokic, Steph Curry, Lebron James, Michael Jordan, Larry Bird, and Kareem Abdul-Jabbar. All legends, but each with unique attributes that happened to fit with the era in which each man played.

Gold has a long history as a store of value, and in certain environments, it has performed well when other assets have faltered. In the early 2000s, the yellow metal began a multi-year bull market, rising from just $250 per ounce in 2001 to over $1,000 by the onset of the Global Financial Crisis (GFC). The drivers were classic: a weakening dollar, geopolitical fear, and growing distrust of fiat currency during waves of money printing.

Gold 2000-2008: From $250 to Above $1,000

Source: Stockcharts.com

Today, gold is the talk of Wall Street, recently hitting an all-time high of $3,500. The dynamics are subtly different, however. This time, gold is responding not just to inflation risk but also to structural instability—fiscal fears, concerns about central bank credibility, and geopolitical jitters. And, for the first time in decades, central banks themselves are among the largest gold buyers.

We believe gold can continue working, and that it’s a core component of an all-weather allocation. In times of escalating geopolitical conflict, some investors turn to assets like gold as a potential hedge against uncertainty.

5. Oil and Energy Markets: Still a Wild Card

Oil price uncertainty further binds the two periods. In the early 2000s, WTI’s climb from $20 to $70 per barrel was driven by Middle East conflicts and soaring demand from China. The second leg of the energy rally resulted in US and international oil benchmarks doubling, eventually nearing the $150 per barrel mark. 

From the S&P 500’s peak on March 24, 2000, to oil’s highest settle on July 3, 2008, the Energy sector was far and away the best-performing of the then 10 S&P groups. Materials, another commodities-related sector, was second-best.

S&P 500 Sector ETF Returns from the Dot-Com Peak to the Oil Peak (2000-2008): Energy Led, Tech Lagged

Source: Stockcharts.com (note: the Communication Services and Real Estate sectors were created after 2008)

Oil and gas stocks were left for dead as internet stocks went to the moon in the late ‘90s. WTI traded to $10, and valuations for the biggest global energy stocks were depressed. (Funny how a war can change all that.) Two-plus decades ago, the US relied on foreign adversaries for energy supplies. Hence, when the US invaded Iraq in March 2003, WTI and Brent were given the green light to soar just as tech stocks did in the previous decade.

What’s different this time? Thanks to private-sector innovations and advancements in drilling capabilities, including the shale revolution, the United States is now the world’s largest oil producer. Gone are the days of begging for increased output from OPEC+ or Mid-East misanthropes. Still, the market has an eerily similar feeling, though less euphoric and more fragile. Eyes are now on the Strait of Hormuz, and tensions remain heated in Iran while domestic drillers hope for sustained higher prices. 

Energy stocks, after a period of underperformance and shifting investor sentiment, are now outperforming many other sectors. In a world of war, deglobalization, and strategic resource hoarding, oil remains the ultimate geopolitical barometer. 

The US Produces More Energy Than it Consumes

Source: EIA

6. Inflation, Rates, and Policy Trade-offs

The geopolitical canvas, decline in the dollar’s value, and inter-sector relationships stir up memories of the early 2000s, at least for those of us who were investing way back then. One key difference is the inflation backdrop. 

In the wake of the tech bubble burst and following 9/11, the Fed was more concerned about deflation than inflation. Then-Fed Chair Alan Greenspan aggressively slashed rates, weakening the dollar and setting the stage for an epic rally in commodities, which eventually led to the housing market meltdown and GFC later that decade. 

Fed Funds Rate 2000-2008: Loosening Monetary Policy in the Early to Mid-2000s

Source: FRED

Today, inflation is a threat, but the current regime is nothing like what was seen during the Biden administration. Another difference? Treasury yields bottomed in the early 2000s—bonds were in bull-market mode from the turn of the century to the middle of 2003. Interest rates then rallied into 2006 and 2007—it was only then that inflation was a priority among policymakers.

Inflation, rates, and policy were all generally favorable for US small caps and value stocks to shine. Indeed, in that respect, diversified investors desperately hope that the ensuing years parallel the early 2000s. Small caps doubled from April 2000 to June 2007, while the S&P 500 returned just 23%, dividends included. 

Small Caps (Black) Soared as Large Caps Lagged (Blue)

Source: Stockcharts.com

Likewise, the value style crushed growth shares. The S&P 500 Value ETF (SPYV) climbed nearly 50% from its late-2000 inception to June 2007. Contrast that to a 40% drop in the S&P 500 Growth ETF (SPYG).

Value Stocks (Black) Soared as Growth Stocks Lagged (Blue)

Source: Stockcharts.com

Macro investors must adapt to today’s different construct—embrace policy uncertainty and study intermarket relationships. Sticky core inflation, commodity price volatility, and tariffs are keeping central bankers on edge. With deficits surging and debt levels at historic highs, monetary policy flexibility is far more constrained than in the early 2000s—a key difference. 

This is a world where inflation may come in waves, not cycles, and where bonds may no longer provide the seemingly perfect hedge they once did. How can investors navigate this? One approach is a dynamic macro portfolio.

Macro Portfolio Implications

The Bottom Line

The early 2000s and today share similarities, but there are also important differences. It’s like a 3-D Venn Diagram that macro investors must study to gain an edge, and we didn’t even touch on the role of passive investing today, the rise of bitcoin, and the new America First agenda. 

Big picture: The early 2000s were a fertile time for investors who invested globally, leaned into commodities, and focused on valuation discipline. The same playbook may serve investors well now.

Allio believes investors should allocate with major economic forces such as inflation, interest rate changes, and global trends top of mind. Macro investing means spreading risk across asset classes instead of betting on just a few stocks. Invest with us today to build a portfolio designed to navigate market shifts and adapt to changing conditions. 

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