It was 17 years in the making, but the Nasdaq Composite finally closed above the next 1,000 point milestone level of 6,000. Considering it first closed above the 5,000 level on March 9, 2000, this equates to an annualized price return of 1.0%. In comparison, the record move from 3,000 to 4,000 took less than two months—equal to an annualized return of 555.8%. Many have said tech is in a bubble currently, but a 1% annualized gain for 17 years isn’t what we’d call asset soaring and in a bubble.
Is the Nasdaq really at a record though? Looking at nominal prices, it sure is. But what if we factored in inflation (real prices)? Doing this suggests the all-time record closing price is really 7,196.56 (using March Consumer Price Index data), not the 5048.62 it closed at on March 10, 2000. So in one respect, it’s still another 19.4% away from a “real” all-time high—yet another reason to suggest tech isn’t in a bubble.
The Nasdaq is considered to be a technology-heavy index, but technology actually comprises less than half of the index’s total market value. A purer look at where the technology sector stands relative to historical highs is better seen in the Dow Jones U.S. Technology Index, which is still 8.0% away from its highs set in March 2000. Here’s the catch: A real breakout just took place for tech. However, per Ryan Detrick, Senior Market Strategist, “Tech might feel like a darling sector now, but on a bigger picture view it is important to remember this group lagged for years. One of our favorite charts shows the Dow Jones Technology Index relative to the S&P 500 completing a 17-year saucer bottom* formation, which suggests the tech rally could only be just beginning.”
Tech remains one of our favorite sectors: Earnings are strong, technicals are improving, and valuations are still attractive. Add it all up and even though this group is off to a great 2017, there could be continued outperformance in the future.
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
The economic forecasts set forth in the presentation may not develop as predicted.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Stock investing involves risk including loss of principal.
Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.
*A rounding or saucer bottom, is a long-term reversal pattern that signals a shift from a downward sloping to an upward sloping trend. This pattern historically lasts anywhere from several months to several years in duration. Due to the long-term look of these patterns and their components, the signal and timing of execution of these types of patterns tend to be difficult to identify than other reversal patterns.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S.-based common stocks listed on the NASDAQ stock market. The index is market-value weighted. This means that each company’s security affects the index in proportion to its market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. It is not possible to invest directly in an index.
The Dow Jones U.S. Technology Index is measures the stock performance of U.S. companies in the technology industry.
This research material has been prepared by LPL Financial LLC.
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