Nasdaq 2000 vs 2013
Source: USA Today

 

Yesterday, the Nasdaq topped 4,000 for the first time in 13 years (but slipped back and closed at 3,995). The composite still remains more than 20 percent below the highs that its dot-com high-flyers pushed it to in March 2000.

What is different between now and the last time the Nazz was here? Valuations, for starters. The big tech leaders in 2000 had nosebleed valuations, assuming they had any earnings at all. Today, the leaders have mostly mid-teen valuations. Looking at the forward earnings, we see Apple with a price-to-earnings ratio of 12.2, Microsoft at 14.1, Cisco at 10.6, Intel at 12.8 and Qualcomm at 14.4.

There are still some stocks with absurd valuations. The poster child is Amazon, which arguably has no earnings, or if we accept the company’s tortured accounting, is at a p/e of 467.4. Google seems almost reasonable at 23.9 p/e, but at least it has growth prospects that somewhat justify that ratio.

Beyond valuations, there are other differences. As Matt Krantz of USA Today points out, the “10 most valuable stocks in the Nasdaq in 2000 accounted for 40% of the Nasdaq composite value.” Today, the top 10 only accounts for 32 percent. It is a somewhat less concentrated index than it was at its dot-com peak. Krantz also notes that technology companies make up 42 percent of the Nasdaq composite, down from 51 percent in March 2000.

Even the Nasdaq 100 (QQQ) is diversifying. Just as the exchange spent much of the past decade trying to broaden itself by attracting non-tech companies, so too has the index. Make no mistake, it is still 54 percent technology firms, according to Morningstar. But nowadays, the Qs also has a broader weighting of consumer cyclicals (17 percent), health care (13.5 percent), communication services (6.3 percent) and industrials (3.7 percent).

Don’t look for financial services, energy, utilities or real estate in the Nasdaq 100 — they are not represented. But they do show up more on the Nasdaq composite exchange than they once did.

Category: Markets

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4 Responses to “Nasdaq 4000: Now and Then . . .”

  1. 873450 says:

    “What is different between now and the last time the Nazz was here? Valuations, for starters. … It is a somewhat less concentrated index than it was at its dot-com peak. … Even the Nasdaq 100 (QQQ) is diversifying.”

    Rational Exuberance?

  2. cobaltbluedolphins says:

    Here’s some other differences from 2000 . . .

    Fed Funds Rate then = ~5.5%; now = ~0%
    10 Year Treasury then = ~6.5%; now = 2.75%
    BAA Corp Bond Yield then = ~8.25%; now = ~5.25%
    Fed Total Assets as % of GDP then = ~6%; now = ~21%
    Federal Deficit as % of GDP then = ~2.5%; now = ~-7%
    Student Loan Debt as % of Personal Consumption Expenditures then = ~1%; now = ~6%

    Valuations have context. And I think the context is worth thinking about too.

    • heh heh I sense a slight bias here . . .

      • cobaltbluedolphins says:

        Barry – Merely wondering how much more demand can officialdom manufacture or pull forward given the extraordinary efforts of the recent past. And what will be the consequent impact on earnings and valuations if the answer going forward is, “not as much.” I think these questions are worth pondering. Bias? Perhaps. But corporate earnings are floating on a world-wide sea of supportive government and central bank policies. Given where interest rates and central bank balance sheets were in 2007, it made sense that highly accommodating policies could re-inflate earnings. Now, one should consider what may happen if those policies have to change or simply become less effective over time.