Breaching NASDAQ’s Psychological Barrier May Prove to be Overly Stressful

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By Jacob Maslow

Nasdaq times square headquartersUsually, when stocks hit a certain psychological barrier, investors have a lot to celebrate. This is true when the Dow Jones industrial average keeps setting new highs. However, it appears that the market sentiment regarding the NASDAQ hitting the 5,000 mark fills investors with both trepidation and optimism. On one hand, it is very easy to get excited about the NASDAQ hitting 5,000. After all, it hasn’t hit this level since the year 2000. This indicates that at least at one level or another, the US economy has truly turned around. There is a lot of growth and innovation exhibited by companies that make up the NASDAQ 500.

With that said, one can’t help but feel a little bit apprehensive. The last time the NASDAQ hit this psychological barrier, it immediately lost 80% of its value within a relatively short period of time. I am, of course, talking about the Dot Com bust of the year 2000. Considering the fact that the NASDAQ tends to lean heavily on tech stocks that tend to be pushed up by hype and buzz, one can’t help but feel a little bit worried.

There are two sides to the argument. On one hand, the US economy is fundamentally different from the economy of the year 2000. A lot of the tech stocks that make up the NASDAQ 500 actually make money. They may not make a huge amount of money but they are actually making money. Compare this with the internet stocks that made up a disproportionate chunk of the NASDAQ 500 in the year 2000. Most of those companies were paper companies. They generated losses but they were worth billions of dollars. What is wrong with that picture?

From that perspective, today’s situation doesn’t even look close to the situation of 15 years ago. Still, there is the fact that the market is pushed up primarily by hype and buzz and the pie-in-the-sky projections of technology. Whether it is mobile technology, cloud computing, or big data, it does give one a tremendous amount of reason to worry. The impending feeling that one gets is that the reality is going to catch on to the hype.

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