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The current stock market environment is reminiscent of the dot-com bubble peak, according to Rob Arnott, the founder and chairman of Research Affiliates. Arnott predicts a significant pullback in the near future.

What Happened: Arnott, who is known for his early predictions of bull market tops, sees parallels between the current market and the dot-com bubble peak, reported Business Insider. He does not anticipate an immediate significant pullback but foresees a substantial decline in the near future.

Arnott’s observations come as the S&P 500, a large-cap index dominated by mega-cap growth firms, surged 5% within a week following the election of Donald Trump, closing above 6,000 for the first time. This rapid increase is the latest development in a 66% rally that has lasted over two years.

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“This looks and feels like the year 2000 to me,” Arnott told the publication.

“Are we likely to see a bear market in the next two years for large-cap growth? Yeah.”

The market’s record highs are driven by a strong economy and optimism about artificial intelligence and business-friendly policies from the future Trump administration. However, Arnott believes that the AI optimism, which has been the primary driver of the rally, is already fully priced in.

Arnott points to the S&P 500’s Shiller cyclically adjusted price-to-earnings ratio, which is at levels comparable to the dot-com bubble peak. At 37 times earnings, just below the late-2021 peak of 38, before the market fell by 25%, and the 2000 peak of 43, right before a 50% loss.

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Arnott also highlights the potential threats to the market’s bullish narrative, such as the rise of competition for companies like Nvidia (NASDAQ:NVDA) and a slower-than-expected pace of AI adoption. However, he added that companies like Nvidia are expected to maintain their 90% market share even as competition intensifies and chip prices eventually decrease.