The NASDAQ composite, 15 years after peaking during the dot com boom, has reached a new all-time high level.Â
NASDAQ's focus is still on technology companies, which when compared to before is much more diversified. The index that tracks 2,500 plus stocks has been continuously going up since 2011.
Since the technology mania is prevailing, investors pushed up the prices for all kinds of internet related stocks. Some of the stocks were never profitable and disappeared. Other stocks like Priceline.com (PCLN) and Amazon (AMZN) have survived and prospered.
Now the index has outperformed again. NASDAQ has ridden a six-year bull market and closed at a level of 5056, which beats its previous record closing of 5048 from March 10, 2000. The index has climbed 7% this year, which is by far the best performance among all major US stock indexes.
To set aside the headline numbers, NASDAQ today is very different from the index it used to be, and the overall market at the height of the technology boom. Investors now have much more measures expectations of companies future earnings compared to the dot com years. Furthermore, there is another point to consider, which if taking the effect of inflation into account the index would have reach to 6,908 levels to match its highs from 15 years ago.
Technology and healthcare stocks have driven NASDAQ's current rise. In a slow-growth world, investors favor industries where earnings will be better than average. Technology stocks are poised to benefit as companies increase their spending on equipment and software to cut costs and improve productivity. Further, healthcare stocks have been climbing as investors are betting on biotechnology companies and hopes are still high that the next blockbuster drug will be discovered. Technology and healthcare stocks account for almost two-thirds of the NASDAQ’s market value.
One stock in particular that holds influence over NASDAQ is Apple (AAPL). The stock market value has surged to more than $750 billion from $22.5 billion in March 2000. The company accounts for 10% of NASDAQ’s value. Since technology and healthcare stocks are getting popular, NASDAQ has climbed 22% over the past year, a more sustainable rise than the 109% surge in the year before its last peaked in 2000.
Further, NASDAQ had a much heavier technology focus in 2000. At their peak, technology stocks made up 65% of the index compared with 43% now. Telecommunication companies were also a big portion, accounting for 12% of the index market value versus 0.8% now. At that time, the biggest stock in the index was Microsoft since it had a market valuation of $525 billion, which was the top value. Apple at that time had not yet release the iPod, iPhone and the iPad.
The price to earnings ratio of NASDAQ was impressive while showing a measure of how much investors are willing to pay for every dollar of earnings the companies in the index generate. When NASDAQ was at its highest level, its price to earnings ratio has reached 194.
Now Apple is on top and Microsoft is a distant second with a market value of $356 billion. Google, Amazon and Facebook were out of the top five in the index. The top 20, however, includes stocks like Starbucks, Express Scripts and Costco.
When NASDAQ reached its record in 2000, Microsoft was the top company in the index. Cisco, Intel, Oracle and Sun Microsystems were among the top five stocks. The top 20 companies in the index were in technology or telecommunications.
