Three reasons why Nasdaq 5000 really is different this time (NDX, IXIC)

new years eveReuters/Carlo Allegri

The Nasdaq index is trading very close to its 5,000 milestone.

When this last happened in 2000, the composite index came tumbling right back to almost 1,000 as stocks and valuations crashed when the dotcom bubble burst.

But is it different this time?

In a note Friday, Gluskin Sheff’s David Rosenberg points out three reasons why this time, it might really be different:

  • Tech stocks are much cheaper now than they were then. “The S&P 500 Tech sector today commands a 15x forward price-to-earnings multiple whereas in 2000, that multiple was 30x and fraught with massively inflated earnings forecasts,” he wrote.
  • Compared to treasuries, the yield from tech stocks is much higher. The dividend yield is 1.5%, similar to a five-year note, whereas in 2000, the yield was nearly 0% versus 6.5% on the 10-year.
  • “It is not just tech any more.” Almost 60% of Nasdaq market capitalization was made up of tech stocks in 2,000, compared to a little over 40% today. The percentage of Health care, financial and consumer stocks on the index has climbed over the years.

So, calling a tech bubble based on Nasdaq 5000 alone is difficult, Rosenberg wrote.

And as Barron’s reported last week, the Nasdaq’s current valuation is well supported by strong earnings and cash flows, not on a dream.

And for an idea of how close we are, here’s a chart.

copy rosGluskin Sheff

You may also like...

Rules of Discussion on Three reasons why Nasdaq 5000 really is different this time (NDX, IXIC)

1. This forum is for discussion of financial markets. Please respect others view even if they are contrary to you.
2. Member's comments should lead to value addition in forum discussion.
3. If anyone is found making repetitive Explicit/Abusive/Racial comments, his account shall be banned and old posts will be deleted.
4. Providing Advice/Recommendations/Tips is fine but it should be free. Members cannot ask to be paid for it. Paid Advice is strictly prohibited
5. Spam links are not allowed. Too much promotion or using Contact info in ID will lead to account ban.
IMP : Members are requested to flag any violations to keep Forum Clean.
Loading comments …