Fifteen years after its bubble exploded dramatically, costing tens of thousands of hopeful tech millionaires their savings, the NASDAQ finally made its way back this week.
And this time, underpinning the market’s new record are real earnings at reasonable price measures, suggesting investors need not fear a repeat of the dot-com crash of 2000.
The NASDAQ led Wall Street higher for the week through Friday, putting on 3.25 percent. Marking the long crawl back from a near-80 percent plunge, it pierced the previous record set on March 10, 2000, on Thursday by more than five points, closing at 5,056.06.
Then, with a flourish from both the old and new leaders of the New Economy (as it was heralded before the 2000 crash) — Amazon.com, Inc, Microsoft Corp and Google Inc all surged on strong quarterly earnings reports — the NASDAQ Composite added to that on Friday with another 36 points, to end the week at 5,092.08.
Dragged up in its wake were the Dow Jones Industrial Average, which put on 1.43 percent to 18,080.14 for the week, and the broader S&P 500, up 1.76 percent, itself ending at a new high, by a fraction of a point.
“It’s the return of the New Economy, but a New Economy that makes money,” said Gregori Volokhine of Meeschaert Financial Services.
That was a reference to the more sane price-earnings multiples for the tech-heavy exchange today. Back in 2000, the p/e ratio was an unsustainable 190 times, mainly because the NASDAQ was full of new tech companies that were full of hopes and ideas, but no earnings.
Today, the NASDAQ exchange is more mature, with a broader base of Internet, tech, biotechnology and pharmaceutical, and non-tech consumer goods companies, all with proven earnings track records. The p/e ratio is about 25.
Even though it still loses money, Amazon, the online retailing power, showed investors in the first quarter that it could grow income by 15 percent, helped by its cloud services, the newest big thing in tech. That was enough to propel Amazon’s shares up 14.8 percent on Friday.
Microsoft, a contender in the cloud computing sector, followed suit with a 10.5 percent gain and Google 3.3 percent — all huge surges from companies valued at more than $200 billion (nearly US$400 billion for Microsoft).
Company earnings and revenues have come in generally weaker, many reporting that the strong dollar and weak global growth has eroded overseas earnings.
FactSet reported on Friday that of the 201 companies in the S&P 500 that have released first quarter earnings, sales have declined 3.5 percent from a year ago and earnings 2.8 percent.
It said that when Apple, which was only the 45th biggest company on the NASDAQ in March 2000 and now ranks the world’s largest, reports tomorrow, it will singlehandedly prop up overall market sales and earnings numbers.
“The blended earnings decline for the entire S&P 500 is -2.8 percent. Excluding Apple, the blended earnings decline for the S&P 500 would increase to -3.9 percent,” FactSet said.
Tom Cahill of Ventura Wealth Management said the market has held up in the first quarter because companies were hitting already understated earnings forecasts.
“The earnings expectations for the first quarter were lowered enough that companies are easily meeting expectations. It puts enough of a floor in the market to sustain it,” he said.
With US economic growth sluggish and the rest of the world in a real slump, some analysts say even the prospects of extended ultra-low interest rates from the US Federal Reserve might not be enough to take US stocks to a higher stage.
“I think the market is going to stall ... the indexes are overvalued,” Hugh Johnson of Hugh Johnson Advisors said. “Even if earnings are good, valuations still matter.”
INVESTOR RESILIENCE? An analyst said that despite near-term pressures, foreign investors tend to view NT dollar strength as a positive signal for valuation multiples Morgan Stanley has flagged a potential 10 percent revenue decline for Taiwan’s tech hardware sector this year, as a sharp appreciation of the New Taiwan dollar begins to dent the earnings power of major exporters. In what appears to be the first such warning from a major foreign brokerage, the US investment bank said the currency’s strength — fueled by foreign capital inflows and expectations of US interest rate cuts — is compressing profit margins for manufacturers with heavy exposure to US dollar-denominated revenues. The local currency has surged about 10 percent against the greenback over the past quarter and yesterday breached
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