IT Boosting Nasdaq... Different from the Dotcom Bubble

Apple, MS, Amazon, Facebook Hit Record Highs Consecutively
Tech Giants Show Strong Stamina
Gap with Dow Reflects Confidence
Full US Economic Recovery Not Easy in Short Term

[Asia Economy New York=Correspondent Baek Jong-min] The Nasdaq index surpassed the 10,000 mark for the first time ever, largely driven by strong earnings from leading U.S. IT companies such as Microsoft (MS), Apple, Alphabet, Amazon, and Facebook. The combined market capitalization of the IT 'Big 5,' including Alphabet, Google's parent company, exceeded 7,000 trillion won.

[Image source=EPA Yonhap News]

On the 9th (local time), MS, Apple, Amazon, and Facebook all hit record highs simultaneously. Apple's stock price, the largest U.S. company by market capitalization, rose 3.16% from the previous day to $343.99. Its market cap was recorded at $1.49 trillion. MS closed at $189.80, up 0.76% from the previous day, with a market cap of $1.44 trillion. Amazon's stock price closed at $2,600.86, with a market cap of $1.3 trillion. Facebook also reached a record high at $238.67, with a market cap of $680 billion. Although Alphabet's stock price did not hit a record high that day, it closed higher than the previous day at $1,452.08. The company's market cap was $990.7 billion. Based on the closing prices that day, the combined market cap of the Big 5 reached $5.9 trillion (approximately 7,070 trillion won).

The surge in tech stocks was largely due to increased demand from the expansion of remote work and other contactless (untact) activities. CNBC reported, "Tech stocks are the biggest beneficiaries of remote work implemented due to the COVID-19 pandemic." Analysts also suggest that these companies could benefit even more if a second wave of COVID-19 occurs, attracting further investment.

The strength of IT companies is also evident in their earnings. According to FactSet, the profits of IT companies listed on Nasdaq increased by 1.4% year-over-year this year. In contrast, S&P 500 companies saw a 21% decline. Notably, during the dot-com boom in the early 2000s, Nasdaq companies had a price-to-earnings ratio of 175, whereas now it stands at 31.8, indicating much stronger fundamentals.

IT companies are also proactively preparing for the post-COVID-19 era compared to traditional companies. Amazon's announcement to invest $4 billion to prepare for the post-COVID era is a clear example.

However, it is difficult to interpret the rapid growth of the Nasdaq index as a sign of the overall U.S. economic recovery. On the same day, the Dow Jones and S&P 500 indices declined. This reflects concerns that the stock market has risen too quickly compared to the pace of the U.S. economic recovery.

Matthew Lockeridge, Head of Equity Management at Westwood Holdings Group, assessed, "While the fundamentals of tech companies like Amazon are very strong, the overall economy is not." According to CNBC, some experts have also expressed cautious views, stating, "It is still too early to declare that the happy days have returned."

Attention is focused on the U.S. central bank, the Federal Reserve (Fed). The Fed will release its assessment of the U.S. economic situation and future outlook immediately after the Open Market Committee (FOMC) meeting concludes on the 10th. The Fed's economic outlook is linked not only to zero interest rates but also to monetary policies aimed at economic stimulus. Casey Bostanik, a researcher at the Oxford Economics Institute, forecasted, "The Fed is expected to predict a strong rebound in the U.S. economy in the second quarter, but economic growth will not return to pre-COVID-19 levels until the latter half of next year."