The market most associated with US technology shares reached a new high in April – the NASDAQ hits 6,000.
You may be old enough to remember that the end of the 20th century was marked by a massive surge in the value of technology shares in the USA.
The majority of these shares were traded on the NASDAQ market – which became synonymous with the ‘tech boom’ – with the Composite Index peaking on 10 March 2000 at 5,132.52 (having been a little under 1,500 in October 1998!).
As the chart above shows, that spectacular rise was followed by an equally spectacular reversal as the ‘tech boom’ became ‘tech bust’. For the many investors who piled in late in 1999, the experience was, to say the least, harrowing and reinforced the NASDAQ’s reputation as being not a place for widows and orphans to invest their money.
That NASDAQ peak of March 2000 survived as an all-time high for over 15 years before finally being overtaken in summer 2015. However, by early 2016 the index had fallen back below 4,500, driven by fears about China’s growth prospects. This correction proved short-lived and last month, the index breached the 6,000 level for the very first time.
Unsurprisingly, the arrival of a new round-number all-time high – at the same time as other US stock markets are generally reaching new highs – has brought back memories of the events of 2000.
It must be pointed out however that the NASDAQ of 2017 is a very different beast to the 2000 version. At the turn of the century, the NASDAQ market was dominated by technology and software companies, but now the NASDAQ constituents are much more broadly spread with, for example, both media and retail playing significant roles.
The market is also very much cheaper than it was 17 years ago in terms of the common yardstick of the ratio of price to earnings (the P/E ratio). At its 2000 peak, the NASDAQ was trading on a P/E of over 70, whereas now it is less than half that level.
Keith Bonner, Director and lead Independent Financial Adviser of HSC Financial Services says “Whilst there are distinct differences between 2000 and 2017, there are absolutely no guarantees that the NASDAQ will not head back down to 1,500 and this is a timely reminder that looking at the index number alone, especially over an extended period, can be misleading”.
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The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.