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The NASDAQ composite index—which consists of more than 3,000 companies, including the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen—made the headlines this week when it broke the 6,000 mark for the first time.
The index has risen more than 12% since the start of 2017, compared with a rise of 7% for the S&P 500*.
However, as the table below shows, some may say that this new milestone has been a long time coming – the technology bubble at the start of the millennium having taken its toll.
Jeremy Gleeson, manager of Elite Rated AXA Framlington Global Technology fund, commented: “The bottom line is that it’s just a price level. There’s emotion attached to it because of the perception of it being a milestone, but it doesn’t carry any fundamental importance, as it is not a measure relative to earnings, sales, growth or yield of the underlying companies.
“Valuations are the far more important metric right now and the data shows that technology companies are generally at the more expensive end of their trading range, but not excessively so.
“It’s also worth noting that although closely linked to technology and used widely as a benchmark for this sector, the NASDAQ is not a pure tech index. Around 50% is made up of technology stocks, with about 15-20% in healthcare and consumer companies, with the remainder in smaller weightings to other sectors.”
*Source: FE Analytics, 1 Jan 2017 to 27 April 2017, total returns in US dollars.