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David Callaway
Dec. 23, 2010, 12:01 a.m. EST
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The folly of a European bailout plan
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By David Callaway, MarketWatch
SAN FRANCISCO (MarketWatch) "” For tech investors, the ghost of Christmas past comes each year on Dec. 11.
That's the date, a decade ago, that the Nasdaq Composite Index /quotes/comstock/10y!i:comp (COMP 2,671, +3.87, +0.15%) last closed above the 3,000 level.
It was eight months after the technology-heavy stock index peaked above 5,000 in March 2000. It was 10 months before the terrorist attacks of Sept. 11; and it was almost two years before the Nasdaq would bottom in October 2002 at just above 1,100.
Peter Eliades, editor of Stock Market Cycles and manager of Stock Market Cycles Management, explains why he sees the potential for a 25% gain on the S&P 500 during the first half of 2011. Stacey Delo reports.
Bill Clinton, the old rascal, was still in the White House. On that specific Dec. 11, the U.S. Supreme Court heard oral arguments in the Bush v. Gore case, ruling the next day in favor of Bush, who would take over the presidency a month later. Fittingly, "How the Grinch Stole Christmas," with Jim Carrey, was the top holiday movie that year.
But amid all the political uncertainty, nobody in tech investor land at that point doubted that the Nasdaq would soon be back above 3,000. I remember arguing on some long-cancelled technology TV show, hosted by now-MarketWatch tech columnist John Dvorak, that the index was incredibly oversold and that the 3,000 level would be an important floor, not a ceiling.
This, of course, proves two things: Christmas is a time be humble. And if you hang around long enough in the markets, you will be right, eventually.
In the intervening years, fortunes continued to be made and lost in Silicon Valley. Google Inc. /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 605.49, +2.42, +0.40%) went public and minted thousands of new millionaires. Steve Jobs reinvented Apple Inc. /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 325.16, +0.96, +0.29%) and presided over one of the most stunning stock runs in tech history. Hewlett-Packard Co. /quotes/comstock/13*!hpq/quotes/nls/hpq (HPQ 41.48, -0.43, -1.03%) endured a scandal, then another one, then another one.
But the glory days of the tech bubble for investors would never be replicated without the twin engines of the tech rally, Cisco Systems Inc. /quotes/comstock/15*!csco/quotes/nls/csco (CSCO 19.56, +0.03, +0.15%) and Intel Corp. /quotes/comstock/15*!intc/quotes/nls/intc (INTC 20.89, -0.21, -1.00%) , and the Nasdaq has remained stuck in the purgatory of the 1,000s and 2,000s ever since. It made one valiant run at 3,000, in October 2007, coming within 141 points of the threshold on Halloween that year. But it quickly fell back as the subprime crisis took hold of the country.
If stocks are indeed poised to rally next year, and active investors are prepared to finally return to equities, one of the first important milestones will be to take out Nasdaq 3,000. As of the market close on Wednesday, the index stood at 2,671, or a bit more than 12% below that goal.
That's easily doable if the conditions are right for an equity break-out next year. But just as there are two sides to the idea of a white Christmas in London, conditions are never right for everybody.
The bulls argue that tech revenue is about to take off, that valuations are cheap, and that cash hoards by the biggest tech companies might finally be deployed next year as the merger business continues to recover. Bears see a collapsing Europe, the return of inflation, a bursting of the bond bubble, and the recent weakness in Chinese stocks as equal reasons for U.S. equities to plunge next year. Hedge funds will be happy either way, as long as there is some volatility.
Market historians will note that once the Nasdaq first crossed 3,000, in early November 1999, it only took about two months to get to 4,000, and another two to get to 5,000, where it stayed for a total of two days before beginning its two-year free fall. By that type of pattern, gold bugs might still have the best of their bubble ahead of them, which would play into the equity bears theory of inflation and currency chaos for 2011.
Nothing lasts forever, though, even it might seem so to long-suffering stock and index-fund investors. For those bulls who expect the economic recovery to finally catch next year, the ghosts of the original tech bubble must first be put to rest.
David Callaway is editor-in-chief of MarketWatch.
David Callaway is editor-in-chief of MarketWatch, responsible for the global news coverage of 100 journalists in 12 bureaus in the U.S., Europe and Asia. A financial journalist for more than 20 years, Callaway has worked for Bloomberg News, the Boston Herald, and assorted television and cable stations as a reporter, columnist and commentator.
As crude tops $90 a barrel, can $100 be far behind?
4:06 p.m. Dec. 22, 2010
"Two turtle doves and Nasdaq 3,000: Earlier this month marked the 10th anniversary of the last time the Nasd... http://on.mktw.net/gFPBPQ" 12:59 a.m. EST, Dec. 23, 2010 from dcallaway
"The folly of a European bailout plan: The markets surged on hopes the U.S. would step in and help bailout E... http://on.mktw.net/eRE4I2" 12:49 a.m. EST, Dec. 2, 2010 from dcallaway
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