By Greg Ip Staff Reporter of The Wall Street Journal
March 10, 2000 1:42 am ET
Knocking aside valuation, interest-rate and psychological barriers like tenpins, the Nasdaq Composite Index rolled through the 5000 mark.
It is a crowning milestone in investors' unprecedented love affair with technology stocks.
The Nasdaq first tested the 5000 mark two days ago, but failed to close above it. Thursday, the Nasdaq used a late-day burst to finish up 149.60 points, or 3.05%, to 5046.86, a little more than two months after first crossing 4000. The index reached the achievement on the strength of Nasdaq stalwarts such as Microsoft , which rose $4.4375 to an even $100, returning its market value above the $500 billion mark, and market newcomers like VeriSign which climbed $37.75 to $240.75. Volume on the Nasdaq reached 1.9 billion shares, a typical level for today's markets but almost double last year's average.
The Nasdaq composite has defied almost all expectations by coming off last year's historic 86% gain with an even stronger start this year. It is up 24% so far this year — that is already just under the full-year gain in 1999 for the Dow, of 25%. By contrast, the Dow is down 12.9% so far this year and the S&P 500 is down 4.6%.
The Nasdaq has accomplished all this without depending on a handful of stalwarts. At a time when most other stocks, including most of the blue chips, are down sharply from their highs, 61% of Nasdaq's stocks are up so far this year and 39% down, according to Ned Davis Research.
A glance at Nasdaq's biggest market value gainers from 4000 to 5000 (which are therefore the biggest contributors to the composite, which is market-value weighted) shows the rotation in the ranks. They include Intel , up 41% to $395 billion; Juniper Networks , up 150% to $43 billion; and PMC-Sierra Inc., up 230% to $33 billion. None were among the top 10 contributors to the Nasdaq's move from 3000 to 4000.
The biggest threat for the rampaging technology market — despite investor sentiment to the contrary — is the continued threat that the Federal Reserve will raise interest rates. Historically, tech stocks have fallen harder than the overall market at times of rising interest rates because of the discounting impact on the present value of their future profits. But that historic rule has been turned on its head this year as almost every other sector went down as scripted as the Fed raised rates but technology climbed to new highs.
The new logic is that rising rates don't affect technology companies because they don't borrow and because their sales growth is enough to overcome any interest rate impact. Indeed, Mr. Olesky said that as the end of the first quarter approaches, Nasdaq could coast to more highs as money managers rotate further into the best-performing stocks.
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