On Monday, March 2, 2015, the NASDAQ
Composite Index broke 5000 points for the first time in 15 years. The NASDAQ
Composite Index ended trading hours at 5008.10 on March 2. The last time this
major index has seen a 5000+ level was on March 10, 2000, where it broke
5048.62 points. In this 15 year gap the Index has rarely reached over 3000. The growth from
4000 to 5000 took nearly a year, but it finally hit that today.
The NASDAQ Composite Index is a
market-capitalization weighted index that includes every company that is traded
on the NASDAQ Stock Exchange. What this means is that every company’s stock
price has a weight, and this Index are those prices multiplied by that weight,
which is then divided by a divisor to make the number more manageable for
reporting purposes.
What is interesting about this milestone
is that it is rare for a major index to end on such a high note. Most indices
bounce around a high during intraday trading, but never really end on that
high. It only took one day for the NASDAQ Comp Index to reach 5008.10.
Last time the NASDAQ ended above
5000 in 2000, it dropped the very next day, never to see such a high number
again. Part of the reason for the steep fall in 2000 was because of the dot-com
bubble. There were many internet start-up that were hyped up by investors, but
showed very poor, and even negative earnings. When many of these firms went
under, the NASDAQ took a huge hit. Today, though, the NASDAQ is filled with
companies with high earnings; this includes Apple, Inc. With $758 billion
market value and recent quarterly profit of $18 billion dollars, Apple accounts
for 1/10 of the index. Other companies, like Amazon.com and Cisco Systems, have
also seen earnings this quarter that were higher than expected. NXP
Semiconductors and Freescale Semiconductors released news of a merger that
would create a company that has over $30 billion in market revenue.
Companies that had a large presence
in the NASDAQ in 2000 are no longer leading the pack, either. Microsoft used to
be the most valuable company on the Index in 2000, but has shrunk to a market
value of $360 billion from $525 billion. Cisco, while seeing positive earnings
this year, has also shrunk from $466 billion to $154 billion. Intel is now $161
billion from $401 billion.
All in all, this type of growth for
the NASDAQ Comp Index is healthier than the very sudden growth back in 2000.
The Index used to be full of many companies that were not profitable and most
of these closed by 2001 and 2002. Today, however, it is full of great companies
that show great potential with their positive earnings and growth.
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