Ghosts of the Dot.Com Bust in Yesterday’s Tech Rout

Nasdaq Composite Index, March 10, 2000 through October 9, 2002.

This is probably a good time to remind all of those young, starry-eyed Robinhood day traders that air pockets like yesterday are often a harbinger of things to come.

By Pam Martens and Russ Martens of Wall Street on Parade

There were ghosts of the dot.com bust of 2000 to 2002 on every trading screen yesterday.

The Nasdaq composite index fell 4.96 percent to close at 11,458.10 but the carnage in many of the underlying stocks was far worse. Notably, 50 stocks in the tech-heavy Nasdaq dropped 9 percent or more yesterday, including some of this year’s highfliers.

One of those highfliers was Zoom Video Communications (ZM). Zoom closed on the first day of trading this year at $68.72; flew to $457 by September 1; lost 9.97 percent yesterday to close at $381.32 – still showing more than a quintupling of its market value in a span of eight months. That stock has a nose-bleed-worthy price-to-earnings ratio of 474.

While much of the focus has been on the bubble in the big tech names like Alphabet (parent of Google), Amazon, Apple, Facebook, Microsoft, and Netflix, dozens of smaller companies have been spiking higher this year while their prospects for sustainable earnings growth are dubious at best: The same overriding characteristic of the dot.com bust.

This is probably a good time to remind all of those young, starry-eyed Robinhood day traders that air pockets like yesterday are often a harbinger of things to come.

During the dot.com mania, the Nasdaq had a closing high of 5,048.62 on March 10, 2000. It then proceeded to lose 78 percent of its value over the next 2-1/2 years. It reached a closing low of 1,114.11 on October 9, 2002.

One year into the crash, New York Times reporter Ron Chernow described the devastation like this on March 15, 2001:

Chernow called the Nasdaq stock market a “lunatic control tower that directed most incoming planes to a bustling, congested airport known as the New Economy while another, depressed airport, the Old Economy, stagnated with empty runways. The market functioned as a vast, erratic mechanism for misallocating capital across America,” Chernow wrote.

“Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody — close to $4 trillion in market value erased in one year — that it amounts to nearly four times the carnage recorded in the October 1987 crash.”

Not to put too fine a point on it, but we’re looking at a lot of empty runways today – both literally and figuratively…

Continue reading the article

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s