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Nasdaq Flat After All These Years
Can't Rise Much Above the 2000 Level
By: Roger Strukhoff
Jul. 6, 2005 10:00 AM
Five years now, going on six, and we’re still treading water. By “we” I mean those of us involved in the technology community in the U.S. By “treading water” I mean the Nasdaq index level, which very stubbornly refuses to leave the 2000 level.
After going over 5000 at the height of the dot.com bubble, we all know that it plunged precipitously and consistently for the next 18 months. Any hope of a quick recovery was dashed by 9/11, and then a new flicker of hope was extinguished when war came in March 2003.
Since then, the Nasdaq’s most important numbers have been 2000, 2000, and 2000. The first of the three numbers represents the year of its peak, the second the level at which it settled, and the third the level at which it is apparently going to stay forever.
Immediately after a post-9/11 plunge below 2000, it climbed
back to that level by Jan. 2002, then plunged again throughout that year. It
wasn’t until Jan. 2004 that it once again reached the 2000 level. And there
it’s remained, floating gently above and below that level a few points at a
time, but never making anything resembling a breakout move.
Let’s not review the damage. The market cap horrors are well-known and provide no additional insight after all these years. But let’s ask the question “why?”
Business seems to be up. The U.S. recovered from what economists classified as a brief recession years ago. Interest rates remain low, Silicon Valley housing prices continue to climb, and we seem to be in a renewed period of innovation.
Developments in search are all the rage. Enterprise data storage (and its security) are lively as all get out. Companies large and small are tripping over one another to promote their unique brand of web services development. There’s a very large, very lively, global debate among major technology vendors and proponents of open-source software.
There’s an acquisition boom going on, led by familiar names Oracle, Cisco, and Sun. Lawsuits are breaking out all over the place again, featuring a familiar cast of characters including Microsoft, AMD, and Intel.
And profits are up in Silicon Valley. Yet job totals are not. Does this have something to do with the lollygagging Nasdaq?
As John Markoff and Matt Richtel just reported in The New York Times, “profits at the seven largest companies in Silicon Valley by market value have increased by an average of more than 500 percent (over the past three years), while Santa Clara County employment has declined to 767,600, from 787,200.”
“During the previous economic recovery, between 1995 and 1997, the county, which is the heart of Silicon Valley, added more than 82,800 jobs. Now, almost everyone agrees that Silicon Valley is coming back, and employment there grew from March to May, but the area still has about 10,000 fewer jobs than there were a year ago.”
What’s known in industry shorthand as “outsourcing” is no doubt the culprit behind the lagging job figures. Yet this is simply a facet of an ongoing globalization that is creating new jobs throughout the world. In theory, this globalization should increase the value of its most aggressive practitioners, and technology companies fit this description today.
As MIT professor and author Lester Thurow describes in his most recent book, Fortune Favors the Bold, the rise of education in a specific country, combined with a collective governmental and societal will within that country, inevitably leads to better jobs in that country. In an age of cheap, broadband, global communications, those jobs can often be within the context of teams spread across multiple time zones. The world may not be getting flatter, but it is getting better-connected.
But shouldn’t the very efficiencies of globalization, which presumably help drive the higher profits, lead to a surging Nasdaq? Or were investors so burned by the multi-trillion dollar meltdown that they no longer have the fortitude, or even resources, to re-invest?
The weak dollar (which Thurow foresaw in his book and which he tied to growing U.S. trade deficits and aggressive export-led economic development by China and others) could make the Nasdaq once again appealing to foreign investors, but only if they are convinced that the dollar will get no weaker. They’re not convinced of that yet.
There are abberations, in the cases of Google and Yahoo. These companies seem to have plans for the future, are steadily developing new services, and are valued partially for their extremely strong abilities to grab, maintain, and develop web traffic. Web traffic overall seems to be growing at about 30% per quarter right now. Increasing broadband deployment in general, wireless broadband in particular, and a booming laptop computing market indicate that web traffic will continue to grow.
Clearly, the technology industry, at least in the U.S., is looking at its Great Cataclysm in the rear-view mirror. But how long can this last if one of the fundamentals—the value of its companies—remains stuck in neutral, with no one seemingly able to jam it back into gear? Here’s hoping this article can help things along!
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