Nasdaq passes 6,000 as tech stocks lead market gains

Propelled by the skyrocketing returns of large technology stocks, the Nasdaq composite index pushed past the 6,000 level for the first time in its history.

The sharp move was driven by a confluence of positive news developments, including a market-friendly outcome in the first round of France’s presidential election over the weekend and reports that President Donald Trump will put forward a plan to slash corporate taxes to 15 percent.

Since Trump’s surprise victory last year, all the major stock indexes in the United States have been on a roll, with the Dow Jones industrial average blowing past 20,000 this year and broader indexes such as the Standard & Poor’s 500 index also hitting highs on a regular basis.

But it has been the technology-heavy Nasdaq composite index that has delivered the far superior performance, rising 11.9 percent year to date — about twice the gains of the Dow and S&P 500.

For the day, the Nasdaq closed at 6,025.49, up 0.7 percent.

Driving this performance has been the persistent run-up in stocks such as Apple, Facebook, Google parent Alphabet and Amazon, which together now comprise about a third of the Nasdaq 100 index, as measured by QQQ, the $43 billion exchange-traded fund that tracks the index.

Apple, Amazon and Facebook are up over 20 percent year to date, with Alphabet having increased by 13 percent.

The Dow closed at 20,996.12 Tuesday, up 232.23 points, or 1.12 percent, while the broader S&P 500 ended at 2,388.61, up 14.46 points, or 0.61 percent.

To a degree, the run-up brings to mind past episodes of stock-market booms and busts that were driven by investors piling into faddish technology stocks, such as the so-called go-go years in the late 1960s and, more recently, the dot-com bubble that collapsed in 2000.

Analysts have pointed out, though, that compared with past manias — in particular the dot-com bubble — the recent surge in technology stocks stands on firmer ground.

“In 2000, the price-to-earnings ratio for Nasdaq was 170 — today it is trading at 26 times,” said Charlie Bilello, director of research at Pension Partners, an investment advisory firm, referring to a common gauge for measuring stock valuations. “That is not cheap, but it’s not crazy. We are definitely not at the level where the average guy quits his job to trade stocks.”

That may be true, but there is no doubt that the explosion in size of these stocks has taken many market participants by surprise, even if it is accepted that their corporate fundamentals are superior.

Since the financial crisis, these four stocks — Apple, Facebook, Alphabet and Amazon — have been at the heart of the U.S. stock market rally and now have all reached sizes — between $400 billion and $700 billion — that in terms of value compare with the gross domestic product of many countries of note.

And in a market that has been driven by large sums of money flowing into passive funds that track the largest companies in the largest stock-market indexes, these stocks have flown higher than most.

Indeed, the booming returns of these index-heavy stocks has been a cause of intense frustration for portfolio managers and hedge funds who charge their investors steep fees to uncover hidden gems in the stock market.

That’s because unless they have a large part of their portfolio in fast growing (and richly valued) stocks like Amazon, Facebook and Apple, they are going to lag their benchmarks and lose money to cheaper exchange-traded funds that track these indexes and provide maximum exposure to these stocks.

This was one of the main reasons that the fund giant BlackRock decided last month to revamp its actively managed stock unit, a move that favored an investment style focusing on machines and models over stock pickers trying to chase the likes of Amazon and Apple.

“The mega cap growth stocks in Nasdaq have had a strong start to 2017, and many active managers have been underweight,” said Todd Rosenbluth, an exchange traded fund specialist at CFRA Research. “People underestimate the fact that large companies continue to get larger. And the answer is — yes they can.”