Nasdaq Composite Index endures one of its worst days ever, The

Weekly Corporate Growth Report, Apr 10, 2000 by Nasri, Jennifer

The Nasdaq composite index suffered one of its worst days ever last week, as technology stocks plummeted drastically. In fact, the 7.6 percent decline was the worst daily performance since the summer of 1998. What caused this disaster? Unfortunately, we can't put all the blame on Microsoft.

Although Microsoft is just one of the 4,827 companies listed on Nasdaq, the company does make up 8.5 percent of the index's value. On April 3, 2000, however, Microsoft was responsible for merely one-sixth of the record making 349.15-point drop. As investors waited for the announcement of the ruling regarding whether or not the company had violated antitrust laws, Microsoft's shares fell $15.375, to $90.875, decreasing the company's total market value by $80 billion.

However the tremendous pummeling which Nasdaq received goes far beyond the Microsoft ruling. Eighty-six of the 100 stocks listed in the Nasdaq 100 fell in value. The companies listed in the Nasdaq 100 are for the most part the largest companies listed in the composite index. Included in the Nasdaq 100 are Cisco Systems, which was the most valuable company in the country for a brief period last month, and Qualcomm, which has declined nearly 30 percent from its highest point which it reach in the first day of trading this year.

The only days that were worse for the Nasdaq composite index, measured by percentages, were the 8.6 percent decline on August 31, 1998, and three days during the stock market crash of 1987. The 1998 decline was attributed to the fear among investors that the financial system was collapsing, and the 1997 fall came during a period when the entire American stock market seemed to be crumbling.

So what does last weeks plunge mean? It is clear that the decline came at a time when many other stocks were doing perfectly well. The Dow Jones industrial average climbed 2.7 percent on April 3, 2000. Additionally, had it not been bogged down by the modifications Dow Jones made last November, when it added Microsoft and Intel to its list, the Dow Jones industrial average would have jumped 3.7 percent. Exactly what the Nasdaq decline means, if it means anything at all, is not easy to decipher due to the record-making volatility in the Nasdaq market this year.

The extent of hurt to investors has to do greatly with the diversity of their holdings. Obviously diversified funds with many large stocks were not hurt as severely as those which focused on technology stocks. For example, the Fidelity Magellan Fund, for which Microsoft was its largest holding, was off a mere 0.3 percent on April 3, largely due to the fact that the fund's second-largest holding was G.E. However, the Fidelity OTC Portfolio and the Fidelity Select Technology Fund, both of which have Microsoft as their biggest holdings, fell 7.8 and 9.2 percent, respectively. Source: The New York Times

By Jennifer Nasri Editor-in-Chief