On November 3, 1999, the NASDAQ closed at 3,028 points, surpassing 3,000 for the first time. The dot-com bubble was reaching its peak. The New York Times devoted extensive coverage to this milestone. At that point, the NASDAQ had risen by almost 3,001 points over the past four years, but the euphoria didn't end there. By December 3, the NASDAQ had surpassed 3,500 points, by December 29, it had reached 4,000, and on March 9, 2000, it had closed above 5,000.
The NASDAQ's final bull run in late 1999 was driven by a few companies. The NASDAQ index closed the year up 85% in Q3. Qualcomm, the best-performing stock (with a share price above $5) in 1999, rose more than 2600% in Q3, and 12 stocks ended the year with gains exceeding 1000% in Q3.
However, the average stock price had already peaked. Aside from a few emerging technology companies, few sectors or companies were on the rise. The financial sector, for example, closed the year down more than 91% in Q3. S&P 500 stocks fell 76% in Q3, and the average stock price on the New York Stock Exchange fell 33.4% in Q3.
The NASDAQ experienced unprecedented exponential growth during 1999 and 2000, known as the "dot-com bubble." This period was characterized by widespread investor euphoria toward technology companies, especially those related to the internet.
Main characteristics of the NASDAQ in those years:
Exponential growth: The NASDAQ index soared in value, surpassing barriers previously considered unattainable. Many technology companies saw their shares multiply in value in a matter of months.
Speculative bubble: Growth was based more on expectations and optimism than on solid company fundamentals. Many companies, especially internet startups, had very high valuations compared to their actual revenues and profits.
Concentration in technology companies: The NASDAQ's growth was concentrated in a small group of technology companies, especially those related to the internet, e-commerce, and software.
Investor euphoria: The euphoria spread to all levels of society, with retail investors and large financial institutions investing large sums of money in the stock market.
What happened next?
At the end of 2000, the bubble burst. Tech company valuations plummeted, and many companies went bankrupt. The NASDAQ lost much of its value and took several years to recover.
Nasdaq
Why did the dot-com bubble occur?
Overwhelming optimism: The rapid expansion of the Internet and the potential attributed to it generated overwhelming optimism among investors.
Ease of market access: The development of the Internet facilitated online investing, allowing large numbers of people to participate in the market.
Lack of regulation: At that time, financial regulation was less strict, allowing speculative practices to develop.
Lessons learned:
The dot-com bubble was an important lesson about the risks of speculation and the importance of fundamental valuation of companies. It also highlighted the need for proper regulation of financial markets to prevent bubbles from forming.
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