Nasdaq Composite Tops 6000 for First Time
April 25 2017 - 11:23AM
Dow Jones News
By Akane Otani
The Nasdaq Composite raced past 6000, its first thousand-point
milestone since the dot-com era.
After the Nasdaq's relatively slow climb, the index topped the
mark in early trading Tuesday in a broad rally that was
turbocharged by corporate earnings from bellwether companies
including Caterpillar Inc. and McDonald's Corp. The Nasdaq was
recently up 0.6% at 6022. The Dow Jones Industrial Average rose
1.2% to 21000 and the S&P 500 added 0.6%.
Surging technology shares have helped the Nasdaq outperform its
peers so far this year. The top five contributors to the Nasdaq's
2017 gains -- Apple Inc., Facebook Inc., Amazon.com Inc., Microsoft
Corp. and Alphabet Inc. -- account for roughly 40% of its advance,
according to stock-market research firm Birinyi Associates.
Such gains have in part come at the expense of the bank and
industrials shares that powered the postelection rally. Tech stocks
have become a way to bet on U.S. economic growth while reducing
reliance on anticipated U.S. policy changes like tax cuts,
deregulation and infrastructure spending, many investors and
analysts say.
Fund managers bumped up overweight positions in the tech sector
to the second-highest level in Bank of America Merrill Lynch's data
going back to 2008, the bank said in March.
"If the economy is going to heat up, you want to be in an area
that can keep up," said Robert Pavlik, chief market strategist and
senior portfolio manager at Boston Private Wealth.
Tech companies in the S&P 500 are on track to post 14%
growth in earnings in the first quarter from the year-earlier
period, according to reported results and analyst estimates on
FactSet, compared with 10% growth rate expected for the broader
S&P 500. If President Donald Trump is successful in pushing
through a tax overhaul, multinational tech firms could see
corporate profits rise even more in subsequent quarters, said Mr.
Pavlik.
"Tech is always going to be the group that pulls in investors
chasing growth," he said.
Apple shares are up 25% for the year on signs of renewed
momentum at the firm. Apple is expected to report quarterly
earnings of $2.02 a share in May, according to FactSet, up from
$1.90 a share in the year-earlier period.
Class A shares of Facebook are up 27% in 2017, with analysts
estimating the firm will report quarterly earnings of $1.12 a share
in May, according to FactSet, supported by data pointing to
sustained growth in its advertising revenue. The firm had reported
earnings of 52 cents a share in the year-earlier period.
Amazon.com, Alphabet and Intel Corp. are scheduled to report
earnings Thursday.
It is the Nasdaq's first thousand-point jump since the dot-com
era, when it took 49 trading days to climb to 5000 and exuberance
for tech stocks helped companies like the now-defunct Pets.com go
public. Later in the year 2000, the Nasdaq erased 37% in 10 weeks
and didn't close above 5000 again until March 2015.
Technology firms now make up less than half of the index by
market weight, versus about 65% in March 2000, according to Nasdaq
Inc. Shares of consumer, health-care and financial companies
represent a growing share of the index.
But it is tech that is leading the way once again this year.
Tech shares in the S&P 500 have risen roughly 14% so far this
year, compared with 3% for financials and 6.7% for the broader
S&P 500. The Nasdaq Composite is up nearly 12% year to
date.
"There will be a few big winners, but many fewer than people
think," said David Rainey, portfolio manager of the Hennessy Focus
Fund. Mr. Rainey's fund has invested in Alphabet, but stayed away
from newer entrants to the market like Snapchat parent Snap Inc.,
citing the relative risks of investing in younger technology
companies with shorter track records of profitability.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
April 25, 2017 11:08 ET (15:08 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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