The Nasdaq has been steadily climbing its way back to the heights of the dot-com boom — leading to the inevitable question of whether it’s headed for another dot-com bust.
While stock-market analysts have a range of views, most argue that the current surge in the tech-dominated index, which on Friday closed at 4,726.81 and peaked in March 2000 at 5,048.6, is more sustainable than the frothy period that marked the late 1990s and later collapsed with the Nasdaq hitting a post-bubble low of 1,108.4 in October 2002.
“Yes, the Nasdaq is real this time,” said Chris Giordano, President of Los Gatos, Calif.-based Giordano Wealth Management, an investment-planning firm. “The fundamentals in the stock market and the Nasdaq today are much better than the fundamentals we had 15 years ago.”
During the dot-com bubble, investors flocked to plunk down bets on smaller tech companies with intriguing technologies but unproven — and sometimes non-existent — revenue streams.
“Companies were being formed by writing down business plans on the backs of napkins,” said Jeffrey Elfont, President of Walnut Creek, Calif.-based Pinnacle Capital Management, an investment manager. “Now, you have new technologies, biotech, connectivity, mobile, social networks. You have Google, Apple, Facebook, Twitter.”
To be sure, it’s entirely possible that some tech companies are overvalued right now, but they have real, not speculative, income.
“Even if they are a bit inflated in price, revenue streams seem more tangible,” Elfont said. “Balance sheets are better. Companies have actual income or solid potential income.”
But how soon the index will surpass its 2000 peak is a different question. Despite the steady rise over the last four-plus years in the index, experts aren’t convinced the surge will be sustained. “I look only for moderate gains in the Nasdaq and the stock market in 2015,” Elfont said, adding the caveat that “even moderate gains might be enough to get the Nasdaq back to the all-time record.”
Robert Gavrich, President of Alameda, Calif.-based Seasonal Strategy, an investment-advisory firm, was decidedly more bearish.
“The stock market, including the Nasdaq, is an accident waiting to happen,” Gavrich said. “The Federal Reserve is being too accommodating, and it is making the same mistakes it made before the financial crisis.”
Problems for the stock market could arrive from macroeconomics: The world economy is full of uncertainty.
“Greece is on the verge of collapse again, and that could affect Italy, Spain and France,” Elfont said. “China is slowing down significantly. Russia expects to go into recession with their economy shrinking by 2 percent and inflation rising by 12 percent.”
Other experts believe the fundamentals of the U.S. economy could be enough to propel the Nasdaq to record levels.
“The Nasdaq and the entire stock market will continue going up, because the U.S. economy is in a sustainable recovery. It is not speculative, it is a realistic recovery,” Giordano said.
Analysts point out that 2014 marked the sixth straight year for gains for the blue-chip Dow Jones Industrial Average, as well as three straight years of gains for the broad-based S&P 500 Index, and three straight up years for the Nasdaq.
“We haven’t had a down year for a long time, so you really don’t know how long that can last,” said Brian Lombardo, President of Gateway Financial Advisors in San Jose. “For now, though, there is a general sense of an improving economy, the Fed keeping interest rates relatively low, and rising stock markets. But you do see a lot of high valuations on the Nasdaq.”
Of course, back in 2000, there were few signs that the Nasdaq would plummet by nearly 80 percent. Gavrich warns that many small stocks are nearing high valuations that he hasn’t seen in decades. He also sees more than a few parallels between the optimism of today and the “irrational exuberance” of the dot-com boom.
“You are seeing the same ethos that ‘tech stocks can’t fail’ that we saw in 1999 and 2000,” Gavrich said. “That’s when the last bubble burst.”