Stocks are looking a little weaker this morning after yesterday's strong rally. It's still pretty quiet though which makes this a good day to back up and take a slightly longer-term look. Specifically, I want to address two ideas: First, can the Nasdaq (^IXIC) hit 5,000 this year and second, does that mean we are in another bubble?
The answer to the first question is yes, of course the Nasdaq can hit 5,000. If it does not happen this year it can certainly do it early next year if only on the basis of momentum and the gravitational pull of big round numbers. The famously tech-laden index is just 6.4% from highs we have not seen in almost a generation. That seems like a lot but keep in mind the Nasdaq is already up 15.9% for the year, almost all of that since mid October.
Since 1971 the average return for the Nasdaq in November is 1.56%. December comes in at 2% and January, the best month of the year, at a 2.7% average return for 43 years.
So a simply average performance through the end of January would put us over the magic 5,000 mark. Of course half of you are already in the comment section writing all-caps screeds about this being another bubble. That's just silly, at least for those of us who lived through and survived the great blow-off top of Y2K.
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As steep as this rally is, it's nothing compared to the waning days of the bubble. Look at the glorious Christmas Tree of Death formation the Nasdaq traced out over the 12 months from November 1999 when it first hit 3,000. Over the next 4 months it rose 40%. From the end of January to the peak, the tech index tacked on more than 30%! The end stages were so concentrated that the real top was almost entirely contained to March of 2000. Yesterday may have been the highest close in 14.5 years but it was actually the 18th highest close ever. All of the other 17 happened within five weeks in 2000.
Two points here: First, don't be at all surprised when the tech index hits 5,000 again. Second, try to ignore the inevitable overwrought comparisons to 2000. That was a once in a lifetime event. Relatively speaking this market is as slow paced and dull as a Russian art film.
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