Bull or new bubble?

If you entered a New York City taxi cab 15 years ago, chances were the driver would offer you stock market tips. Wayne Kaufmann, chief market analyst at Phoenix Financial Services, recalls being at parties in 2000 and people coming up to him bragging about their stock decisions. "They didn't even want my opinion as a market analyst, which was comical," he remembers.

Back then, the Internet was going to make everyone rich. Companies like Worldcom, Pets.com and AOL promised everyone their share of an apparently ever-lasting bull market. Everyone invested - from taxi drivers to bankers. Finally, on March 9, 2000, the index hit 5,000 for the first time ever. Two trading days later the bubble burst. In Germany as well as the US, thousands of small investors lost their savings.

Almost exactly 15 years later, on March 2, the Nasdaq is exactly where it was then, at 5,000 points. But celebrations seemed cautious, with everyone wondering if they were in for a dose of déjà vu.

'It is not your father's Nasdaq'

The majority of US market analysts see the index totally changed since the dotcom crash. For one thing, the tech industry had a very different look to it - in 2000, Apple had not sold its first iPhone, the biggest online search machine was AOL, and Facebook founder Mark Zuckerberg was still in high school. "Much less than half of today's Nasdaq 100 was in the index back then," says Kaufmann.

Today, Apple has a market capitalization of about $730 billion (670 billion euros). It is the leader of the index and was the main reason the Nasdaq hit the 5,000-point mark. Since the market launch of the iPhone 6 in September 2014, its market cap has grown by about $130 billion - which has also fueled its suppliers' values. The stock of the semiconductor company Skyworks, for instance, rose 140 percent over the last year.

It took 29 years for the Nasdaq to reach 5,000 points for the first time. Now it has done it again, 15 years later. From more than 4,700 companies in the index back then, only about 2,600 are still listed today. The share of technology companies has shrunk, and more consumer services and pharmaceutical companies have been added to the index.

A closer look at these companies' fundamentals justifies a more optimistic view this time round, says Daniel Ernst, market analyst at Hudson Square Research. He takes the example of Twitter: "The stock is probably overrated, but at least the company is profitable," he says. The company's last earnings report, from February, beat Wall Street expectations, even though only adjusted earnings were positive. Ernst also points out that most of the index is now profitable - 15 years ago only 68 businesses were - today the count is 90.

There are more reasons why we are not seeing the rise of a new bubble: from 1995 to 2000, investors flooded the stock market with more than $1 trillion dollars in mutual funds. In the 14 years since, they have withdrawn a net $394 billion, according to a Wall Street Journal report. "I don't see the lunacy I saw in the dotcom bubble," financial historian Richard Sylla of New York University's Stern School of Business told the WSJ. "Investors are much more circumspect about thinking, is this thing really going to pay off?"

The 5,000-point mark is important in terms of psychology, but due to inflation the Nasdaq is not quite where it was 15 years ago. Analysts at Birinyi Associates have calculated that today's index would need to reach 6,908 points to match the level of the 2000 era.

Skeptics stay alert

But it's not only investors who ask themselves if, for instance, Uber, the company providing a taxi app for smartphones, is really worth $40 billion, as measured during the last round of funding. And is the photo-messaging app Snapchat worth as much as $19 billion? Comparing the market capitalization and the estimated value of the start-up, the photo-messaging app company is worth more than Germany's second biggest bank, Commerzbank, and is valued at ten times more than the New York Times.

The number of start-ups evaluated at more than $1 billion has nearly doubled, from 40 in 2013 to 73 in 2014, according to the Wall Street Journal. Venture capitalists increased their investments in start-ups in 2014 to $52 billion - the same level as in 2000.

Still, most of those businesses are not listed on any stock exchange. "For the most part this is institutional money that's getting involved," says Wayne Kaufmann. "These are sophisticated investors and they know that some of them are not going to work out. But these are not stocks that some little old lady puts their IRA into and then get crushed."

David Kotok, chief investment officer at Cumberland Advisors, still expects some movement in the Index. "We have had an extended bull market of six years' duration," he wrote in a recent analysis. "Corrections have been elusive but are inevitable. That includes the Nasdaq."