Long Term Perspective

The NASDAQ composite index increased 9.5 percent in 2006 – notably below other major indexes but a significant improvement from the small 1.4 percent rise for the NASDAQ in 2005.  Nevertheless, the yearly gain was larger than that posted by the Dow Jones Industrials – indeed,

The 10-year average in the NASDAQ composite nudged down to 12.5 percent in 2006 from 13.8 percent the prior year. Since this market tends to include new and growing companies, it should not 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.

From 2004 through 2006, the Nasdaq composite index has generally posted year-over-year gains, although they have been relatively small and there were a few, brief negative months. In 2007, however, the Nasdaq has shown some signs of strength as the tech and services sectors were seen as somewhat safe havens during the subprime crisis. In November 2007, the Nasdaq was up 9.4 percent, but down sharply from up 20.8 percent on a year-on-year basis in October. Nonetheless, the Nasdaq has netted gains this year. Through the end of November 2007, the Nasdaq was 10.2 percent above year-end levels – ahead of the Dow’s 7.3 percent.

The Nasdaq composite index fell 6.9 percent in November, following a 5.8 percent jump in October. The Nasdaq got quite a boost over the August through October period due to Fed rate cuts. However, recession talk plus a few, key company warnings on earnings weighed on techs in November.