Currently Nasdaq is trading at above 5200 levels, which is higher than the level that Nasdaq had made during the dot com peak in FY 2000.
What has changed during these past 16 years?
The Nasdaq’s current rise has been driven by technology and health care. In a slow-growth economy, investors favour industries where revenue and earnings growth will be better than average. Tech stocks are poised to benefit as companies increase their spending on software to cut costs and improve productivity. Health care stocks have been climbing as investors bet that biotechnology companies will discover the next blockbuster drug. Today Tech and Health care stocks together hold 56% of weight in Nasdaq.
In 2000 Nasdaq was mainly driven by Tech stocks, which had weight of 56% as against weight of 43% as of 2016, Telecom stocks were also a big component after tech, having a weight of 17% against a weight of 1.12% as of 2016.
2016- Apple is the Market leader with Market Cap of $589 Billion, Google is second highest with Market cap of $549 Billion followed by Microsoft, Amazon, Facebook
2000 – Microsoft was the biggest company in the index followed by Cisco, Intel, Oracle, Sun Microsystem
From 2000 to 2016, all the top 5 heavyweight of 2000 except Microsoft have lost their position. Microsoft. which was the titan in 2000 currently is 3rd largest in Nasdaq Composite. Sun Microsystem was one of the market leaders in year 2000 but after the dotcom bubble burst, Sun Microsystem share price crashed because of falling sales. In December 2001, the stock fell to the 1998, pre-bubble level of about $100 from $200 , Year later Sun Microsystem price fell to $10 and never bounced back, finally in 2010 Oracle acquired the company.
How expensive is the Index?
Price earnings ratio of Nasdaq is 32 as of 2016 while price earnings ratio in year 2000, when Nasdaq topped 5000, was above 175 and that was mainly due to the Dot com bubble.