The Nasdaq is closing in on 5,000 for the first time since the peak of the tech bubble in 2000.
And a report in this week’s issue of Barron’s argues that for the tech index, this time it’s different.
Barron’s Alexander Eule notes that when the Nasdaq topped 5,000 in March 2000, the index held this level for less than two full days and crashed 80% over the next two and a half years. So you can see why some investors might be having nightmares with the Nasdaq composite currently less than 50 points from this milestone.
But in his report, Eule quotes Fidelity’s Gavin Baker, who says that, “
What was propelling the Nasdaq in the year 2000 was a dream. What’s driving the Nasdaq today is reality … The current valuation is very well supported by earnings and cash flows and if those earnings and cash flows continue growing, the Nasdaq should continue going up.”
Eule notes that the Nasdaq currently trades at about 21 times forward earnings, far less than the 100 times earnings the index traded at in 2000. And if profits in the index continue to rise as analysts expect, Nasdaq 7,000 could soon be in sight.
But aside from the particulars of the report, Barron’s is often looked to by many in the investing community as a contrarian indicator, though this superstition has a suspect track record.
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