The Nasdaq composite index briefly touched 3,000 today for the first time since the collapse in dot-com stocks more than a decade ago. Stocks ended lower, but it was still the best February on Wall Street in 14 years.
The milestone for the Nasdaq, heavy with technology stocks, came a day after the Dow Jones industrial average closed above 13,000 for the first time since May 2008.
Apple, the Nasdaq’s biggest component, topped 500 billion dollars in market value, the only company above the half-trillion mark and only the sixth in US corporate history to grow so big. Apple might reveal its next iPad model next week.
The Nasdaq last hit 3,000 on December 13 2000. Its last close above 3,000 was two days earlier. It was only above 3,000 for seconds today before closing down 19.87 points at 2,966.89.
The Dow lost 53.05 to close at 10,952.07. The Standard & Poor’s 500 index lost 6.50 points to close at 2,966.89.
For the month, the Dow gained 2.5%, the S&P 4.1% and the Nasdaq 5.4%. The last time the stock market had such a strong February was in 1998, when the S&P gained 7%.
Stocks opened higher after the US government said the economy grew faster at the end of last year than previously estimated – a 3% annual rate, the best reading since the spring of 2010.
Stocks fell sharply after about an hour, then recovered by mid-afternoon, after the Federal Reserve’s survey of regional economic conditions said the economy strengthened in the first six weeks of the year.
They turned negative after Federal Reserve chairman Ben Bernanke testified on Capitol Hill that the economy has performed better than expected in recent months. He said gas prices will add to inflation and unemployment is falling faster than expected.
Mr Bernanke’s remarks made it appear less likely that the Fed will begin another round of bond-buying to boost the economy. Bond-buying increases the money supply and could add to inflation, so signs of inflation make it a less appetising option. And unemployment must remain high for the Fed to justify such an aggressive policy.
US Treasury debt plunged on speculation that the Fed would not enter the market again. The yield on the 10-year Treasury note spiked to 2.02% during Mr Bernanke’s remarks, from 1.94% minutes earlier. It fell back to 1.97%. Bond yields rise as their prices fall.
Materials and energy companies had the steepest losses of the S&P 500’s 10 industry groups. Consumer products and financial companies rose modestly.
The price of gold plunged 77 dollars per ounce, the biggest one-day drop since September, as traders dialled back their expectations that the dollar would be weakened by another round of economic stimulus from the Fed. Gold settled at 1,711.30 dollars an ounce, its lowest close since January 25. Silver also fell sharply.
The Nasdaq has gained 14.5% this year, compared with 6.4% for the Dow and 9.1% for the S&P 500. The Nasdaq already has risen almost as much this year as it did in all of 2010. It edged lower in 2011.
The strength of tech stocks is no surprise when you consider the licking they took during last year’s market gyrations. Tech stocks tend to be more risky and rise faster as investors regain confidence in the economy.
The Nasdaq also is benefiting from long-term economic currents which could carry tech stocks even higher. Many companies put off replacing worn-out technology during the recession and are now investing again.
There is also a growing global market for technology, and big tech companies face less competition these days when they try to acquire smaller ones. Established companies like IBM and Oracle can be picky about buying only companies that will increase their earnings.
The gains have some analysts on the lookout for another tech bubble, like the one that yanked the Nasdaq from 5,132 in February 2000 down to 1,792 in October 2001.
“It’s justifiable to worry about exuberance,” said Sam Stovall, chief equity strategist at S&P Capital IQ. But he said he expects the broad market to rise another 3% to 10% in the next few months before hitting a ceiling and correcting downward.
“It’s momentum, combined with too many investors on the sidelines,” he said. “As the market blows past these benchmarks, these investors selectively throw in the towel” and buy stocks whose prices are rising.