Yesterday, almost 15 years (!!!) after peaking at the height of the Internet bubble in March 2000, the NASDAQ closed above 5000, and traded within a percent of its old high of 5048.
We should first note that this is not your older brother’s NASDAQ. Many former stars have flamed out; healthcare and services companies, which were a footnote back in the last century now make up about 40% of the index. So the rebound hasn’t been achieved by the same group of companies that sagged in 2000.
Typically, reaching an old high brings out a rush of selling, as disgruntled holders “trapped” in losses finally break even and cash out. Yes, looking in the rearview mirror and waiting for breakeven is a little crazy. But the tendency is cemented deep in the modern psyche–in fact, it’s the first thought habit I tried to break when training analysts and PMs–and everyone has it.
Still, I can’t imagine that many people hanging on this long. After all, emotional buyers/sellers had the excuse of a lifetime in 2009 to dump out losing holdings.
Because of this, I don’t expect the typical breakeven purge.
Nevertheless, reaching a significant milestone almost always induces the market to pause and reflect. It’s like having a clean canvas and hesitating to place the first brush stroke …or like knowing you have to set out in a new direction but not wanting to take the first step. A certain amount of milling about takes place before the eventual break above the old high.
Because of this, I expect NASDAQ will have some initial trouble establishing new high ground, for this reason.
Two points to remember:
–in 2000, NASDAQ stocks were priced in the stratosphere. They collapsed after spending on tech stuff came to a screeching halt. that happened in large part because the feared Y2K worldwide computer meltdown didn’t happen.
Today, prices are reasonable, the index is much more diversified and economic growth appears steady, albeit slow. So I think a repeat of the 2000 swoon is highly unlikely.
–once any price breaks through all the old highs, investors eventually realize that, from a market technician’s point of view, there’s no more resistance to upward movement anywhere. It’s all blue sky. So prices begin to motor strongly ahead.