Nasdaq surpasses its dotcom boom record

The Nasdaq Composite closed in record territory on Thursday, completing a 15 year recovery from one of the most spectacular equity market busts experienced by investors.

The $7.7tn technology bellwether has finally topped its March 2000 dotcom bubble peak of 5,056.06 and is within easy distance of the intraday record of 5,132.52.

During the Nasdaq's long journey back from the bursting of the internet bubble, the composition of the benchmark has altered markedly as US equities have experienced two bull markets and companies generated record profits.

While many global equity markets are sitting at all-time or multiyear peaks against the backdrop of aggressive central bank easing, Nasdaq's push into record territory has been spurred by investor appetite for companies at the forefront of innovation, including a number like Apple with vast amounts of cash.

"We are back at 5,000 because the scarcest commodity in capital markets today is fundamental growth,'' said Nicholas Colas, chief market strategist at Convergex. "It is very hard to find companies that show revenue growth and it has just gotten worse with the appreciation of the dollar and the slowdown in economy."

"Now, whether or not these companies can live up to their promises is another matter," he added.

Since October, the Nasdaq has risen more than 20 per cent, outpacing the S&P 500's gain of 14 per cent.

Technology shares, led by Apple, the world's largest company and carrying a 10 per cent weighting in the Nasdaq alone, are benefiting from robust revenue and profit forecasts.

The rise of Google and other innovative companies that were not around in 2000, such as Netflix, Tesla, Facebook and LinkedIn, underscore the marked changes in the technology benchmark in the past 15 years.

Dotcom favourites, Amazon and Priceline have risen from the ashes of the internet bust and a host of biotechs have also propelled the Nasdaq's recovery. Tech boom era stalwarts, including Microsoft, Intel and Cisco, remain high profile members of the Nasdaq.

In contrast with the dotcom frenzy, valuations for leading Nasdaq members are far more restrained. The pesent trailing price to earnings ratio for the Nasdaq stands at 26 times, according to FactSet. This measure soared to 72 times during dotcom fever with the likes of Cisco at 127 times, Oracle at 103 times and Yahoo at 418 times earnings.

Given the scale of the late 1990s rally and rocketing valuations, investors, burnt by the subsequent crash, thought any return to the 5,000 threshold would take decades to attain.

From late 1998 to early 2000, the Nasdaq surged 250 per cent as internet mania gripped investors, with the benchmark rocketing from 1,400 to an intraday peak of 5,132.52. Stratospheric valuations and earnings multiples well above 100 times were all but ignored as investors focused on the growth potential of the internet.

The bust was equally spectacular as many tech companies that generated little or no profit, burnt through their cash and investors dumped shares. By October 2002, the Nasdaq plumbed a low of 1,114.11 and while the broader US market climbed to a new record in 2007, the technology benchmark stalled below 3,000 as the financial crisis dawned.

After falling back below 1,300 during the financial crisis, the Nasdaq has risen roughly 300 per cent, however on an inflation adjusted level, the benchmark significantly trails its internet boom peak.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation