Nasdaq Marks Its Own Millennium
A breathtaking 156-point surge in wireless telecommunications phenomenon Qualcomm Inc. helped push the Nasdaq Stock Market to its first-ever close above 4,000 on Wednesday, as professional and individual investors continued their seemingly fearless stampede into technology stocks.
Nasdaq’s march past another millennium mark was fueled by many of the same factors that have propelled its scorching advance all year: a hunger for tech and Internet stocks despite their already dizzying heights, bullish predictions by Wall Street analysts and the widespread belief that the market is gearing up for more gains in January.
Aided by heavy buying in the final 10 minutes, the Nasdaq composite index rose 69.35 points, or 1.8%, to close at 4,041.46. It was the index’s 60th record high this year and its first close above 4,000 after briefly crossing that level in each of the previous three sessions.
The index pierced 4,000 less than two months after it crossed 3,000. It broke through 2,000 only last year.
Even considering that each successive 1,000-point jump is smaller on a percentage basis, the dramatic advance has left many analysts scrambling for new superlatives to describe this phase of Wall Street’s 9-year-old bull market.
As has been the case for much of this year, Wednesday’s market rally was concentrated in Nasdaq’s technology, telecom and biotech sectors.
While winners topped losers by nearly 2 to 1 on the New York Stock Exchange, the blue-chip Standard & Poor’s 500 index added just 0.4% to close at a record high. The Dow Jones industrial average inched up 7.95 points to 11,484.66, although that too was a record.
It seemed fitting that Nasdaq’s latest milestone was reached thanks in part to another surge in Qualcomm. The San Diego-based company, whose stock has climbed almost 2,500% this year, took flight again after PaineWebber Inc. analyst Walter Piecyk predicted the shares would reach $1,000 within a year. He said that price would be justified by future royalties the company will receive for its wireless-phone technology.
Qualcomm zoomed $156, or 31%, to a record $659 in regular Nasdaq trading, then advanced further after-hours, reaching $690 on Instinet.
The performance of the shares through the day underscored the bullish sentiment investors still feel toward the stock, despite its spectacular 1999 gain. Qualcomm ended regular Nasdaq trading just off its high for the day of $662.06. Often, stocks that rise so strongly give in to profit-taking late in the session.
Instead, many investors are unwilling to part with Qualcomm even though its price-to-earnings ratio based on estimated 2000 earnings per share is a gargantuan 169.
Besides the latest analyst tout of the stock, investors also are focused on Qualcomm’s planned 4-for-1 stock split, which takes effect today. That will lower the per-share price of the stock and make it more accessible to many investors.
As with Qualcomm, analysts say, investors now are afraid of jumping too soon out of many of the tech issues that have powered Nasdaq higher. Those shares dominate the 5,000-stock Nasdaq composite.
“One of the big mistakes you can make in a bull market is sitting on the sidelines and saying, “It’s too high,’ ” said Gary Anderson, a technical analyst at Anderson & Loe in Eugene, Ore.
Following quiet days on Monday and Tuesday, many on Wall Street expected the market lull to continue this week with many professionals on vacation.
Some analysts believe the volatility in key Nasdaq stocks this week can be tied to heavy trading in these issues by smaller investors, including “day traders” who may enter and exit a single stock many times in a single session.
However, experts say the latest huge gains in some tech stocks are too large to be attributed only to individuals. Overall Nasdaq volume has tailed off this week, but it is still strong enough to indicate heavy activity by institutions.
For example, Qualcomm traded almost 15 million shares Wednesday. Even at its closing price of $503 on Tuesday, 100 shares cost more than $50,000, while 500 shares topped $250,000--out of reach of most small investors.
Instead, professional investors who underestimated the strength of large tech and Internet stocks are racing now to fill their portfolios with them, some analysts say.
“Certainly, lots of day traders are in these things because of the volatility, but it also goes without saying that with these kinds of volumes we’ve got institutional buyers participating,” said Bill Yancey, manager of trading at Southwest Securities Group in Dallas.
The recent performance of shares of leading Internet portal Yahoo, among other tech issues, has convinced many mutual fund managers that they must own Internet and other pricey tech names despite what are dangerously high valuations by historical norms, said John Wheeler, a senior trader at American Century mutual funds.
Yahoo leaped 37.5% to $348 in two days early this month in advance of the stock being added to the S&P; 500. Some money managers expected it to back off sharply thereafter. But when that didn’t happen, investors impressed with the strength of the stock bid it even higher, Wheeler said.
Yahoo closed Wednesday at $403.69, up $13.44.
Other Nasdaq issues leading Wednesday’s rally included DoubleClick, up $28.19 to $249.13; Phone.com, up $18.19 to $118; Infosys Technologies, up $23.75 to $339; and Oracle, up $3.88 to $110.
Still, some experts believe the tech rally is nearing a short-term peak. The outsized gains in many issues in recent weeks could be a sign of a so-called climactic top.
In this scenario, all the willing buyers pile into a stock in a panic to get aboard. As that demand finally exhausts itself, at least temporarily, sellers begin to take control and beat the price down.
“When a stock or industry group rises straight up, historically that’s a sign that it’s at, or very close to, the end” of a rally, said Allan Rudnick, chief investment officer at Kayne Anderson Investment Management in Los Angeles.
Greg Kuhn, general partner of Kamco Partners, a hedge fund in Easton, Pa., points out that the Nasdaq composite index now is further above its 200-day moving average--a measure of the longer-term trend in the index’s value--than at any time in history.
Still, Kuhn feels that while “most of your [stock] leaders are very extended in price,” the stock market overall “still looks pretty healthy.” He thinks a correction may hit tech stocks soon, but believes that won’t be the end of the bull market.
Many Net stocks cracked in April after stupendous runs, he noted, yet the broad market didn’t collapse.
Market Roundup, C8
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Nasdaq’s Run for the Stars
The Nasdaq composite index crossed yet another milestone on Wednesday, closing above 4,000 for the first time, as major computer, Internet, biotech and telecom stocks continued to rocket. The latest advance lifted the index’s year-to-date gain to 84.3%--the biggest annual gain for any U.S. stock index in history.
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Source: Bloomberg News
