Desmoines News Desk

Nasdaq’s new-high math: Breakout or bubble?

Nasdaq’s new-high math: Breakout or bubble?

After 15 years on the comeback trail, the Nasdaq composite is back to its record-breaking ways. And that’s got Wall Street wondering: Is the tech-packed stock index now in breakout — or bubble — mode? No doubt last week was a historic one for the Nasdaq. The index — best-known for market excess due to the bad ending to the dot-com stock boom in 2000 — finally completed its round-trip boom-bust-boom journey.635655148157008193-GTY-470859192

That long, strange trip began at the Nasdaq’s prior peak of 5048.62 on March 10, 2000, followed by 15 long years of trying to erase a nearly 80% loss from its depressed low of 1114.10 on Oct. 9, 2002, to Thursday’s first record close since 2000 and Friday’s new all-time high of 5092.08. The general consensus on Wall Street is that the Nasdaq high circa 2015 is built on a more sturdy foundation of companies that are making money and have stocks selling at valuations that are just a tad above the historic average and nowhere near the nosebleed levels seen in 2000.

Still, new highs attract attention and get Wall Street debating the pros and cons. “It’s a bubble,” warns Axel Merk, chief investment officer at Merk Investments and portfolio manager of the Merk Funds. Like 2000, too many investors have too little fear of the stock market, he says. This rally, which began in spring 2009 and has been fueled by cheap money policies and massive stimulus from the Federal Reserve and other central bankers around the globe, could also end badly, Merk says.

“When markets rise on the backdrop of low volatility year after year, investors become complacent,” says Merk. “Central banks have fostered this complacency. However, as the Fed is trying to engineer an exit, fear may replace complacency. That’s when investors may wake up, realizing that they didn’t sign up for a wild ride, exacerbating any decline. As such, while the circumstances are different from 2000, a crash can happen all the same.” At the very least, Merk advises investors to lighten up on winners to lower the risk in their stock portfolios.

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