The Nasdaq is closing in on its first four-quarter decline since the dot-com crash

The once high-flying technology sector has suffered a heavy sell-off this year amid concerns that the sector’s growth could be limited by rising interest rates. The tech-heavy Nasdaq Composite fell more than 14%.

Chris Hondros | Newsmakers | Getty Images

A lot has changed in technology since the dot-com boom and bust.

The Internet has gone mobile. The data center has moved to the cloud. Now cars drive themselves. Chatbots have gotten pretty smart.

But one thing remained. When the economy turns around, investors rush for the exits. Despite a furious rally on Thursday, the tech-laden Nasdaq ended the fourth quarter in the red, marking its longest such streak since the dot-bomb era of 2000-2001. The Nasdaq’s only negative four quarters stretch in five. -decade date was 1983-84, when the video game market collapsed.

This year, the Nasdaq has fallen in all four quarters for the first time. A 9.1% decrease was observed in the first three months of the year, a 22% decrease in the second quarter, and a 4.1% decrease in the third quarter. It fell 1% due to an 8.7% decline in December in the fourth quarter.

For the full year, the Nasdaq was down 33%, its steepest decline since 2008 and its third-worst year on record. The decline 14 years ago occurred during the financial crisis caused by the housing crisis.

“It’s really hard to be positive about technology right now,” Gene Munster, managing partner at Loup Ventures, told CNBC’s Brian Sullivan on Wednesday. “You feel like something’s missing. You feel like you’re not pulling a prank.”

Aside from 2008, the only year worse for the Nasdaq was 2000, when the dot-com bubble burst and the index fell 39%. Early dreams of the Internet taking over the world have evaporated., famous for its sock puppet, went public in February of that year and closed nine months later. EToys, which held an IPO in 1999 and saw its market cap reach nearly $8 billion, floundered in 2000 and lost nearly all of its value before going bankrupt early the next year. Delivery company never got its IPO off the ground, filing in March 2000 and withdrawing its offer in August.

Amazon It had its worst year in 2000, falling 80%. Cisco 29% and the following year it decreased by another 53%. Microsoft More than 60%, and Apple is down more than 70%.

The parallels with today are quite obvious.

In 2022, the company was known as before Facebook it lost nearly two-thirds of its value as investors failed to weather the future in the metaverse. Tesla The automaker, long regarded as a technology company, fell by a similar amount as it became a reality. Amazon’s half price is down.

There was no IPO market this year, but many companies that went public last year at astronomical valuations lost 80% or more of their value.

Perhaps the closest analogy to 2000 was the cryptocurrency market this year. Digital currencies Bitcoin and ether It has decreased by more than 60%. More than $2 trillion in value was wiped out as the great fled crypto. Many companies have gone bankrupt, most notably cryptocurrency exchange FTX, which collapsed after a $32 billion valuation earlier in the year. Founder Sam Bankman-Fried is now facing fraud charges.

It is the only major cryptocurrency company traded on Nasdaq Coinbase, announced last year. In 2022, its shares fell 86%, wiping out more than $45 billion in market value. Overall, Nasdaq companies have lost nearly $9 trillion this year, according to FactSet.

At its peak in 2000, Nasdaq companies were worth a total of about $6.6 trillion and continued to lose about $5 trillion of that when the market bottomed out in October 2002.

Don’t fight the Fed

Despite the similarities, things are different today.

For the most part, the crash of 2022 was less about businesses disappearing overnight and more about investors and executives waking up to reality.

Companies are downsizing and revaluing after a decade of growth fueled by cheap money. With the Fed raising rates to keep inflation under control, investors stopped putting a premium on fast, yield-free growth and started demanding money creation.

“If you’re just looking at future cash flow without profitability, these are companies that will do really well in 2020, and they’re indefensible today,” Shannon Saccocia, chief investment officer at SVB Private, told CNBC’s “Closing Bell.” Overtime” on Tuesday. “The tech dead story is probably in place for the next couple of quarters,” Saccocia said, adding that some parts of the sector “will have light at the end of this tunnel.”

SVB's Shannon Saccocia says,

The tunnel he describes is the Fed’s continued rate hikes, which can only end if the economy goes into recession. Either scenario worries most of the technology that tends to thrive when the economy is in growth mode.

In mid-December, the Fed raised its benchmark interest rate to a 15-year high, to a target range of 4.25% to 4.5%. This rate was close to zero both during the pandemic and in the years following the financial crisis.

Tech investor Chamath Palihapitiya told CNBC in late October that more than a decade of zero interest rates “distorted the market” and “allowed mania and asset bubbles to build in every part of the economy.”

Palihapitiya took advantage of available cheap money, leading investments in special purpose buyout companies (SPACs), blank check institutions poaching companies to take them public through reverse mergers.

With no return on fixed income and technology attracting stratospheric valuations, SPACs will raise more than $160 billion on U.S. exchanges in 2021, nearly doubling from the previous year, according to SPAC Research. This year, this figure dropped to 13.4 billion dollars. CNBCs Post-SPAC indexComposed of the largest companies to debut through a SPAC in the past two years, it lost two-thirds of its value in 2022.

SPACs declined in 2022


‘Bargale basement’ shopping

Predicting the bottom, as all investors know, is a fool’s errand. No two crises are alike, and the economy has changed even more since the housing crash of 2008 and the dot-com crash of 2000.

But several market forecasters expect a big jump in 2023. Loup’s Munster said his fund is 50% in cash, adding that “if we thought we were at the bottom, we would have placed today.”

Duncan Davidson, co-founder of venture capital firm Bullpen Capital, also expects more pain ahead. He looks back at the dot-com era, when it took two years and seven months to go from peak to trough. As of Friday, it had been just 13 months since the Nasdaq hit a record high.

“I think we’re going to see a lot of bargain basements taking over companies,” Davidson, who started investing in technology in the 1980s, said of private equity investors in 2023. “We may have two years” to reach the bottom of the market, he said.

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