Record-setting Nasdaq assumes leadership role

Having reclaimed record territory after an absence of 15 years, the US Nasdaq Composite has assumed a leadership role, and in dollar terms is now outperforming the broad eurozone market for this year.

The Nasdaq's gain of 7.5 per cent this year comfortably eclipses the 2.9 per cent rise for the broader S&P 500. While US investors have poured money into eurozone shares and been rewarded by double digit gains in local currency terms, a weaker euro translates into only a rise of 6.3 per cent in dollar terms for the FTSE Eurofirst 300 index.

Nasdaq may be synonymous with technology but diversification into other areas, notably healthcare and consumer services, has powered the market past the record closing high that represented the peak of the dotcom boom in March 2000.

Nasdaq has also benefited from the search by investors for strong growth candidates in what has been a period of lacklustre revenue for companies in the aftermath of the financial crisis. Companies at the forefront of innovation, such as Apple, and biotechnology firms are seen offering the potential for dramatic growth.

The composite rose to make new highs last week, surpassing the peak of 5,048.62 from the bubble era in March of 2000. On Friday, it closed at 5,092 - its second successive record close, buoyed by upbeat earnings from the likes of Microsoft, IBM and Amazon last week.

The Nasdaq remains just shy of the intraday peak of 5,132.52 set during 2000, when technology dominated the measure. At 42 per cent, technology remains the largest sector in the Nasdaq, but that weighting represented two-thirds of the market back in 2000.

"Nasdaq is still predominantly tech, but it is not pure tech," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "It has come back because it is a mixture."

If not, Mr Silverblatt says, Nasdaq would emulate the S&P Information Technology sector, which is down more than 20 per cent from the dotcom bubble era, and off 11 per cent, including dividends.

Among the sectors that have helped to power Nasdaq higher in recent years is biotechnology. Healthcare accounts for 16.9 per cent versus 6.8 per cent. Consumer services have risen from 7.7 per cent to 20.6 per cent. Financials have more than doubled from 3.3 per cent to 7.1 per cent.

"Of course, the amusing question is where would the Nasdaq be without Apple?," says Mr Silverblatt, who notes that stripping out the world's largest company means the S&P technology sector would be down 38 per cent.

After falling back below 1,300 during the crisis, the Nasdaq has risen 300 per cent. On an inflation adjusted basis, the benchmark significantly trails its internet boom peak.

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