Tags: Nyaradi | tech | bubble | 2000

John Nyaradi: The Current Tech Stock Selloff Isn't Another March 2000

By    |   Friday, 18 April 2014 09:07 AM

The recent Nasdaq plunge seems a lot like March 2000, when the dot-com bubble burst.

As most investors remember — probably all too well — speculators piled into anything and everything with a .com suffix, driving valuations to stratospheric levels even though many companies had not earned a single penny. Then the bubble burst.

This time around companies involved in 3D printing have price-earnings (P/E) ratios well above 100. Biotech investors, not even bothering with ratios, are focusing on momentum and sentiment. Sound familiar?

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Economists and other pundits have been pondering if this is another March 2000. "Most do not see any valid comparison between the two selloffs," John Nyaradi, publisher of Wall Street Sector Selector, writes in an article for MarketWatch.

To begin with, momentum stocks have taken the brunt of this year's selloff, unlike in 2000 when the entire market tumbled, he argues.

In 2000, the entire market was overpriced. Many observers now think stocks are overpriced. But the S&P 500 now has a trailing 12-month P/E ratio of 17, Nyaradi explains. It was 29 in March 2000.

Plus, the Federal Reserve continues to hold short-term rates at rock-bottom levels. Long-term rates are also still low. The Fed is continuing its bond-purchasing, although it is gradually tapering the purchases, he notes.

"On the downside of the ledger, margin debt remains near record highs, the 'sell in May and go away' period is approaching, and the Nasdaq remains suspiciously weak."

Watch the Nasdaq and Russell 2000, which tend to presage the overall market's direction, either down or up, he advises. At the moment, they're not looking so hot. Both are below their 50-day moving averages, Nyaradi cautions. "For this to be April 2014 instead of March 2000, we need to see the Nasdaq and Russell 2000 regain their footing."

Goldman Sachs analysts don't believe we're repeating 2000 either.

"We believe the differences between 2000 and today are more important than the similarities and the recent momentum drawdown is unlikely to precipitate a more extensive fall in share prices," states a Goldman report, according to MarketWatch.

Based on historical experience, the S&P 500 will probably recover over the next few months but momentum stocks face tougher odds of rebounding.

In the 46 drawdowns of momentum stocks since 1980, the S&P 500 had an average return of 5 percent and positive returns 70 percent of the time, according to the report. Momentum stocks dropped another 4 percent on average and posted negative returns 60 percent of the time.

Editor's Note: 250% Gains Bagged Using Secret Calendar (See Video)

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The recent Nasdaq plunge seems a lot like March 2000, when the dot-com bubble burst.
Nyaradi, tech, bubble, 2000
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2014-07-18
Friday, 18 April 2014 09:07 AM
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