The Nasdaq has surpassed the psychologically important dot-com record, but it would have to rise another 36% to 6,941 to truly be in record territory, taking into consideration inflation and the drop in the value of the dollar since 2000. It could still get there, since Apple (AAPL) and Tesla (TSLA) have yet to report earnings.
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Still, after 15 years and two recessions, one great, the Nasdaq has beaten its nominal all-time closing high of 5,048.62 reached on March 10, 2000. The Nasdaq then plunged a sickening 78% by October 2002. Meanwhile, the Dow has hit new all-time nominal and inflation-adjusted 2000 highs.
Analysts say there are many bullish arguments for why the Nasdaq will power beyond its inflation adjusted high. Valuations are cheap now versus the dot-com era of Webvan and sock puppets at Pets.com. Back then, stocks were speculatively valued based on revenue per eyeballs or clicks. The Nasdaq traded at a gut-clenching P/E ratio of 107 during the final days of the Internet boom, compared with today’s P/E of about 25, which is still rich compared to the S&P 500’s multiple of about 18.
Back in the dot-com bubble era, the Nasdaq nearly tripled when it zoomed 189% in the two-year run up to its record close. That’s more than three times the ascent the Nasdaq has risen in the past two years. Also, the Nasdaq is more diversified today; the tech sector comprises 43% of the Nasdaq, versus 57% in the dot-com era. Stocks in consumer services and health care make up 21% and 16% of the index, respectively.
Still, the tech horsemen of the Nasdaq have helped deliver a momentum-driven, apparently solid multiple for the index as the companies that survived the dot-com implosion continue to power the Nasdaq today. Many tech stalwarts are cash rich, with strong sales and profits, versus the phantasms in profit reports past.
Revenues and earnings from tech bellwethers like Apple, Microsoft (MSFT), Cisco (CSCO) and Intel (INTC) show that despite global, macro-economic concerns, if consumers like their tech products, then tech stocks can beat the pack by riding the wave of trends in smartphones, video streaming, cloud computing, and cybersecurity, not to mention the whizbang gadgets for the home. Amazon and eBay also survived the dot-com bust.
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Tech innovations also continue across sectors, financials, health, automotive, oil and gas exploration as well as renewable energy. Goldman Sachs (GS) estimates earnings-per-share for the Nasdaq 100 will grow 15% over the next year, versus 5% for the S&P 500.
And as Apple goes, so too go the indices. Big Red now comprises a remarkable 9.74% of the Nasdaq, versus just 0.2% at the index record high in 2000. Its $178 billion cash pile now surpasses the GDP of Uzbekistan.
Not to be discounted are record amounts of stock buybacks helping the profit picture, “the corporate sector’s version of QE,” quips economist Ed Yardeni. “The Fed bought lots of bonds to lower bond yields. Corporations borrowed lots of money in the bond market to buy back their shares. By doing so, they’ve engineered an artificial increase in their earnings per share, and pumped up their P/E multiples too,” says Yardeni.
In the S&P 500, buybacks totaled $2.3 trillion from the first quarter of 2009 through the fourth quarter of 2014, Yardeni says. “By some estimates, buybacks are on track to total $1 trillion this year, following last year’s $553 billion pace,” the economist adds.