Nasdaq Composite Ends Above 5000 for First Time Since Dot-Com Era

Milestone marks revival of an index once synonymous with technology bubble








By DAN STRUMPF

Updated March 2, 2015 5:34 p.m. ET

The Nasdaq Composite climbed above the 5000-point level for the first time in almost 15 years on Monday, another milestone in the revival of an index that once was synonymous with dot-com excess but now reflects a broad swath of global technology, consumer, health-care and financial firms.

The Nasdaq Composite, which tracks the prices of the 2,571 companies on the Nasdaq Stock Market, rose 44.57 points, or 0.9%, to 5008.10. It first crossed 5000 just after 10:30 a.m. EST, marking the first time the index has traded at that level since March 27, 2000.


The Nasdaq’s rebound underscores the renewed ascendancy of U.S. financial markets following the twin crashes of 2000 and 2008 as well as the repeated U.S. debt-ceiling standoffs in recent years. The dollar, measured by the WSJ Dollar Index, has surged more than 17% over the past year, as investors around the globe have poured funds into U.S. assets in anticipation that an uneven U.S. recovery will shift into higher gear.


The Dow industrials and the S&P 500 index each have set several dozen new highs over the past few years, driven by a growing U.S. economy, healthy corporate profits and exceptionally easy Federal Reserve policy.


On Monday, the Dow Jones Industrial Average rose 155.93 points, or 0.9%, to 18288.63. The S&P 500 index gained 12.89 points, or 0.6%, to 2117.39. Both benchmarks notched fresh all-time highs.


The Nasdaq briefly hit a dot-com era milestone by reaching 5000, but can it maintain its momentum? WSJ's Kristen Scholer reports. Photo: AP.


NASDAQ AT 5000





The Nasdaq’s march back up to 5000 has been deliberate, driven by steady growth in earnings and dividend payments at the companies it lists. Although the index’s ascent is nowhere near as rapid as it was in 2000, its gains are viewed as likely less ephemeral and bearing less risk for shareholders. Nasdaq companies collectively fetched 120 times their earnings over the previous year in March 2000, compared with 26 today, according to FactSet.

“A grounded rally is probably a decent way to put it,” said Hank Herrmann, CEO of Waddell & Reed Financial, which manages $125 billion. “There’s certainly not anything bubble-ish going on in valuations of the big-cap technology stocks.”


Among the signal developments of the recent rally is the emergence of Apple Inc., which is the most valuable company in the world with a market capitalization of $758 billion, more than the Nos. 2 and 3 U.S. firms, Exxon Mobil Corp. and Microsoft Corp. , combined. The Cupertino, Calif., consumer-electronics firm, which accounts for a tenth of the Nasdaq index, recently posted a record U.S. quarterly corporate profit of $18 billion.


Apple isn’t alone in showing financial strength this year.Amazon.com Inc. and Cisco Systems Inc. surprised Wall Street with bigger-than-expected profits in the fourth quarter, as a number of other sectors of the stock market struggled.


The Nasdaq’s gain on Monday was helped along by a high-profile deal announcement: Nasdaq-listed NXP Semiconductors NV surged 17% after it and Freescale Semiconductor Ltd. agreed to a merger that would create a company with combined market value of more than $30 billion. Freescale shares rose 12%.


Despite the push above 5000, traders reported relatively light activity Monday, consistent with a weekslong downturn in trading volumes and more subdued moves in stocks.


“You’re seeing across-the-board strength in tech. It’s been the place to be,” said Angel Mata, head of institutional equity trading at Stifel Nicolaus. But he added: “As the market continues to move higher, volume starts to go to the side. Those that are long want to stay long because they’ve made enough mistakes selling stocks too early. And the buyers don’t really want to chase.”

ENLARGE
After fifteen years, the Nasdaq is close to topping its all-time high of 5,048.62, set on March 10, 2000. PHOTO: ASSOCIATED PRESS


IN THE MARKETS





The slow pace at which the Nasdaq crossed 5000 is emblematic of the shifts in the market. When the Nasdaq last topped 5000 on March 10, 2000, it gained 3.1% in a single session. Then, it took a little more than two months for investors to lift the index from 4000 to 5000; this time around it has taken more than a year. “I’m not seeing a melt-up at this juncture,” Mr. Herrmann said. “Valuations are much, much more attractive relative to then.”

The Nasdaq has risen 295% since U.S. markets bottomed in March 2009. That compares with gains of 213% in the S&P 500 and 179% in the Dow industrials over the same span.


Among the signal developments of the recent rally is the emergence of Apple Inc., which is the most valuable company in the world with a market capitalization of $758 billion, more than the Nos. 2 and 3 U.S. firms, Exxon Mobil Corp. and Microsoft Corp., combined. The Cupertino, Calif., consumer-electronics firm, which accounts for a 10th of the Nasdaq index, recently posted a record U.S. quarterly corporate profit of $18 billion.


Apple isn’t alone in showing financial strength this year.

Amazon.com Inc. and Cisco Systems Inc. surprised Wall Street with bigger-than-expected profit in the fourth quarter, as a number of other sectors of the stock market struggled.


Robust earnings and upbeat profit forecasts for many technology companies this year have pushed the Nasdaq ahead, in percentage terms, of the S&P 500 and Dow, which have been weighed down by concerns about global economic growth, falling profits at energy companies and banks still struggling to pay big legal bills that are a legacy of the financial crisis.


So far this year, the Nasdaq has gained 5.7%, compared with a 2.8% rise in the S&P and a 2.6% climb in the Dow.


The Nasdaq’s gains reflect the shifting character of an increasingly diverse group of global companies. The Nasdaq now is about 40% technology companies, down from two-thirds in 2000. About a fifth of Nasdaq companies deal in consumer goods and a sixth in health care.


At the same time, this year has offered investors some unhappy reminders of the toll that time has taken on even some successful veterans of the first Nasdaq run to 5000.


Microsoft, the most-valuable company on the Nasdaq in March 2000 and the second-biggest after Apple now, is up 14.5% over the past year. But the Redmond, Wash., software maker’s market value has shrunk to $360 billion now from $525 billion then.


Similarly, Cisco has shrunk to $151 billion from $466 billion and IntelCorp. to $157 billion from $401 billion, according to FactSet and Nasdaq data. Investors in all the firms have done better than the market cap figures would imply because of the dividends the firms have paid.


Elsewhere in the stock market on Monday, a 2.6% gain in Visa Inc. contributed 45 points to the Dow’s gains. Costco Wholesale Corp. named Citigroup Inc. and Visa Inc. as its new credit partners. Citi shares gained 2%, while Costco gained 0.7%.


Cardinal Health
Inc. agreed to acquire Johnson & Johnson ’s heart-product business for $1.94 billion in cash. Cardinal shares rose 1.7%, while those of J&J gained 0.7%.


Later this week, investors will be closely eyeing Friday’s jobs report for February. Economists polled by The Wall Street Journal expect employers to have created 230,000 jobs last month. The unemployment rate is seen ticking down to 5.6%.


European stocks ended mixed. Germany’s DAX gained 0.1%, to close at a record, while France’s CAC-40 fell 0.7%.


Crude-oil futures fell 0.3% to $49.59 a barrel. Gold futures declined 0.4% to $1207.70 an ounce.


The yield on the 10-year Treasury note rose to 2.083% as prices fell.

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