Long Term Perspective

The NASDAQ composite index increased 1.4 percent in 2005, a meager showing, even by the 2004 comparison. Nevertheless, the yearly gain was larger than that posted by the Dow Jones Industrials - indeed, the DJIA posted a slight drop.

The 10-year average in the NASDAQ composite decreased to 13.8 percent in 2005. Since this market tends to include new and growing companies, it shouldn't be surprising that the long-term annual gain is larger than it is for the S&P 500 or the Dow Jones Industrials. Both of those indices measure the performance of older, more established companies.

Short Term Perspective

This chart underscores the high volatility of this market - notice the wide range of year-over-year growth and decline. The Nasdaq composite is known for its focus on high tech companies but it also includes industrials, banks, insurance, transportation and biotechnology stocks. Historically, newer companies that were not able to meet requirements for listing on the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX) were traded on Nasdaq. In recent years, many big names (Microsoft, Intel, Sun Microsystems, Cisco Systems) that could have listed on the NYSE have remained on Nasdaq.

In the past three years, the Nasdaq composite index has generally posted year-over-year gains, although they have been relatively small. However, in October, the Nasdaq was up 11.6 percent and followed this impressive performance in November 2006, with a 10.3 percent increase from a year earlier. Through the end of September, the Nasdaq was 10.3 percent above year-end levels.

The Nasdaq composite index increased 2.7 percent in November. After months of weakness and poor performance, the high tech market has shown steady signs of recovery since July, when the Nasdaq was down. Clearly, investors were relieved that the Federal Reserve did not increase its federal funds rate target at the last three FOMC meetings. Economic figures have been moderate and inflation benign this month, supporting the Fed's action.