Bull market high for Nasdaq shows rally has legs

By Matt Krantz, USA TODAY

Tech stock investors Tuesday enjoyed a feeling others are still waiting for: a new bull market high.

Another big day for stocks, especially those in the technology sector, pushed the Nasdaq composite index up 28.68 points to 2533.52. The rally caps off an 11.7% rise this year and notches the Nasdaq's highest close since June 2008. While the Nasdaq is still 50% below its record high during dot-com mania in March 2000, it has nearly doubled from the 2009 bear market low and has set the market's pace.

The jump in the Nasdaq shows just how much vigor the ongoing rally on Wall Street has. "When we have a strong market in either direction, the Nasdaq tends to be the leading edge," says Stephen Lieber of Alpine Mutual Funds. "We're seeing very strong trends. Investors feel more secure."

The Dow Jones industrials and Standard & Poor's 500 index are still 0.1% and 1.9% away from their bull market highs as Wall Street awaits news of Wednesday's Federal Reserve meeting. Still, investors are paying close attention to the Nasdaq, as it:

•Shows conviction. Tech is one of the sectors, along with materials and industrials, that investors rush into when they see better things ahead for the economy, says Hugh Johnson of Johnson Illington Advisors. Much of the optimism is warranted as the tech sector is posting record earnings in a better-than-expected third-quarter earnings season, says Thomson Reuters. Meanwhile, analysts have upped forecasts for tech companies' future earnings more than any other sector. "The message of the market is that the bears are wrong," Johnson says. "Not only is the stock market doing well, but technology is doing well," he says.

•Highlights demand for growth. Rather than being wowed with companies that cut costs, investors are seeking companies that are powering revenue growth with new products, says Karl Mills of Jurika Mills and Keifer. "Money gravitates to where there is growth and pricing power. That's technology," he says.

•Counterbalances financials. Large banks and other financials continue to hold back the other major stock market indexes, and that's a weight the Nasdaq isn't struggling with as much, says Bill Stone of PNC Wealth Management. In addition, while the Federal Reserve pushed interest rates down and the dollar weakened, that's a boon to industries that are heavy exporters, such as tech, says Rod Smyth of RiverFront Investment Group.

Even so, investors should be careful before assuming tech stocks are the pace car that will lead the other market indexes to record territory, Lieber says. High unemployment is a drag on the economy. Meanwhile, the weak dollar hurts companies that must pay higher prices for raw materials, he says. "We've seen extraordinary markets," he says. But the economy continues to slowly recover in "a trend that is creepy-crawly."

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