Nasdaq Composite Tops 6000 for First Time

By Akane Otani Features Dow Jones Newswires

The Nasdaq Composite raced past 6000, its first thousand-point milestone since the dot-com era and the latest sign that technology companies have become the driving force in the stock-market rally.

Continue Reading Below

After 17 years, the Nasdaq topped the mark in early trading Tuesday in a broad rally that was turbocharged by corporate earnings from bellwether companies including Caterpillar Inc., McDonald's Corp. and biotechnology giant Biogen Inc. The Nasdaq was recently up 0.6% at 6021. The Dow Jones Industrial Average rose 1.1% to 20990 and the S&P 500 added 0.6%.

Surging technology shares have helped the Nasdaq outperform its peers so far this year. The top five contributors to the Nasdaq's 2017 gains -- Apple Inc., Facebook Inc., Amazon.com Inc., Microsoft Corp. and Alphabet Inc. -- account for roughly 40% of the index's advance, according to stock-market research firm Birinyi Associates.

Such gains have partly come at the expense of the bank and industrials shares that powered the postelection rally. Tech stocks have become a way to bet on U.S. economic growth while reducing reliance on anticipated U.S. policy changes like tax cuts, deregulation and infrastructure spending, many investors and analysts say.

Fund managers bumped up overweight positions in the tech sector to the second-highest level in Bank of America Merrill Lynch's data going back to 2008, the bank said in March.

"If the economy is going to heat up, you want to be in an area that can keep up," said Robert Pavlik, chief market strategist and senior portfolio manager at Boston Private Wealth.

Continue Reading Below

Tech companies in the S&P 500 are on track to post 14% growth in earnings in the first quarter from the year-earlier period, according to reported results and analyst estimates on FactSet, compared with the 10% growth rate expected for the broader S&P 500.

"Tech is always going to be the group that pulls in investors chasing growth," he said.

Apple shares are up 25% for the year on signs of renewed momentum at the firm. Apple is expected to report quarterly earnings of $2.02 a share in May, according to FactSet, up from $1.90 a share in the year-earlier period.

Class A shares of Facebook are up 27% in 2017, with analysts estimating the firm will report quarterly earnings of $1.12 a share in May, according to FactSet, supported by data pointing to sustained growth in its advertising revenue. The firm had reported earnings of 52 cents a share in the year-earlier period.

Amazon.com, Alphabet and Intel Corp. are scheduled to report Thursday.

It is the Nasdaq's first thousand-point jump since the dot-com era, when it took 49 trading days to climb to 5000 and exuberance for tech stocks helped companies like the now-defunct Pets.com go public. The Nasdaq erased more than 30% in 10 weeks from a peak close on March 10, 2000, and didn't close above 5000 again until March 2015.

Today's Nasdaq looks different than it did then.

Valuations have backed off the levels they reached in 2000. As of Monday, companies in the Nasdaq traded at roughly 28 times their past 12 months of earnings, according to Thomson DataStream, compared with 69 times on March 10, 2000.

The index has also become more diverse, with technology firms now making up less than half of the index by market weight, versus about 65% in March 2000, according to Nasdaq Inc. Shares of consumer, health-care and financial companies represent a growing share of the index.

But it is tech that is leading the way once again this year. Tech shares in the S&P 500 have risen roughly 14% so far this year, compared with 3% for financials and 6.6% for the broader S&P 500. The Nasdaq Composite is up nearly 12% year to date.

"There will be a few big winners, but many fewer than people think," said David Rainey, portfolio manager of the Hennessy Focus Fund. Mr. Rainey's fund has invested in Alphabet, but stayed away from newer entrants to the market like Snapchat parent Snap Inc., citing the relative risks of investing in younger technology companies with shorter track records of profitability.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

April 25, 2017 12:12 ET (16:12 GMT)