Here is a bold prediction for you: Nasdaq 5000 is coming to a theater near you. The recent breakout of the 4 month range is a work of art. All it will take now is a few percentage points in AAPL, FB, GOOGL, INTC & MSFT and the confetti will be flying:
I am not sure what you can do with that nice round number aside from waxing poetically about the good ol days and how much money you made on the way up in 1999 and how much money you lost from the March 2000 highs to the October 2002 lows. The 16 year chart is astounding, and the rally from 2500 in mid 1999 to the highs in March 2000 just above 5100 is something we should hope to never see again, as it was the cause of a protracted bear market and a fairly deep recession:
This time around it took three years to double. And like 1999 the heavy lifting has been done by a few dozen companies. But this time those companies have become amazingly profitable, generating hundreds of billions of dollars in revenues. I would hazard a guess that the combined 2014 sales of AAPL, AMZN, GOOGL, INTC & MSFT (equaling close to $500 billion) is a multiple of the entire Nasdaq’s combined sales in the height of the dotcom bubble. (These 5 stocks above make up 33% of the Nasdaq 100.). Oh and these five companies have a combined $375 billion in cash on their collective balance sheets, whoah!
There isn’t the same speculative excess this time around as most of the group (excluding AMZN) are cheap on almost every traditional valuation metric, to their historical and the market.
Yesterday in this space we took a quick look at the “bubbles within” the bull market, and concluded
Whether or not current equity valuations are warranted on traditional merits like earnings and sales growth, current valuations owe a lot to the unprecedented period of historically low interest rates. This financial engineering has served in place of an expansion of r&d, capex and hiring. The plan has always been to hand the economy back to the companies when they are ready to pick up the baton. But at some point it became clear that it was just easier to continue to ride the wave, and not risk the consequences of a round of tightening. Regardless of the reasons, most major U.S. equities are at new highs (or threatening) and most of the stocks and sectors that have done a lot of the heavy lifting, trade at or slightly above market multiples.
So we can agree the Nasdaq Composite is not a bubble like it was in 1999, but it could be very soon if we start to see manias around the IPOs of Uber, Snapchat and Pinterest in 2015.
Headlines just this week:
Uber Expands Funding Round as Revenue Growth Accelerates per WSJ
Pinterest is raising a huge round at an $11 billion valuation per Business Insider
Snapchat Said to Seek Up to $19 Billion Value in Funding per Bloomberg
The bubble appears to be in private tech valuations. My friend Josh Brown summed up the environment in Silicon Valley in a single Tweet yesterday:
There’s so much f***ing money sloshing around the Bay Area they even threw the coffee guy $15 million http://t.co/f15ktuyzd8
— Downtown Josh Brown (@ReformedBroker) February 19, 2015
So there are plenty of things different this time. But keep an eye on what’s coming through the pipeline. The potential ills of our bull market may be awaiting us in the private markets right now. With so much cash being thrown around it will be interesting to see what actually lies beneath when money tightens.