Nasdaq Composite Tops 6000 for First Time
April 25 2017 - 4:33PM
Dow Jones News
By Akane Otani
The Nasdaq Composite raced past 6000, the latest sign that
technology companies have become a driving force in the recent
stock-market rally.
The Nasdaq hit the milestone 17 years after it reached 5000
during the dot-com era, in a broad rally Tuesday that was
turbocharged by earnings from bellwether companies including
Caterpillar Inc., McDonald's Corp. and biotechnology giant Biogen
Inc.
The Nasdaq rose 0.7% Tuesday to 6025. The Dow Jones Industrial
Average increased 1.1% to 20996, 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 the index's
advance, according to stock-market research firm Birinyi
Associates.
Such gains have partly 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.
Technology 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 around 12% year to
date.
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 the 10% growth rate expected for the broader
S&P 500.
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 28% 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, Google's Alphabet and Intel Corp. are scheduled to
report 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. The Nasdaq erased more than 30% in 10 weeks from a peak on
March 10, 2000, and didn't close above 5000 again until March
2015.
Today's Nasdaq looks different than it did then.
Valuations have backed off the levels they reached in 2000. As
of Monday, companies in the Nasdaq traded at roughly 28 times their
past 12 months of earnings, according to Thomson DataStream,
compared with 69 times on March 10, 2000.
The index also has become more diverse, with technology firms
now making 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.
A rally in biotechnology shares has given the Nasdaq a boost in
2017. The Nasdaq Biotechnology Index has climbed 12% this year,
with its latest advance coming Tuesday after multinational biotech
firm Biogen reported earnings that beat analysts' estimates.
Signs that a tax plan from the Trump administration could be
coming has helped reinvigorate a rally in financial and industrial
stocks in recent sessions, but investors continue to bet on big
tech companies.
The Nasdaq has produced bigger total returns, including price
changes and dividend payments, than the S&P 500 and the Dow
industrials in seven of the past 10 years.
"Tech is always going to be the group that pulls in investors
chasing growth," said Boston Private Wealth's Mr. Pavlik.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
April 25, 2017 16:18 ET (20:18 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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