March 04--Is this a reason to celebrate or to cower?
The Nasdaq stock market index has just about clawed its way back to 5,132, the high point it reached 15 years ago when people figured they couldn't miss in the stock market. That euphoria evaporated, of course, when the Nasdaq plunged to 1,114 and inflicted a 78 percent loss on those holding onto the index of beloved technology stocks.
A decade-and-a-half is an awfully long time to wait to get back to even. The thought of waiting year after year to recover college savings and retirement money still leaves scars.
The late 1990s and early 2000 was a blissful period. People who'd never invested before chose technology stocks and had their egos stroked daily as their investments soared.
I still remember a teacher giggling about her newfound wealth and wondering how she could shelter the money from taxes. She'd never given a second thought to tax shelters just weeks earlier. She'd doubled her money in a matter of days in a hot Internet company that made products she couldn't fathom. Like many companies pioneering on the Internet, the company collapsed a few months later.
Before the carnage started, people felt good about everything, from the security of their jobs to politics to their stock investments.
"Those were the good old days," said Frank Newport, Editor-in-Chief of the polling firm Gallup.
When pollsters surveyed what was displeasing to the public then, people had difficulty coming up with anything, Newport said. For every measure that Gallup tracked, the responses were extraordinarily positive. Back then, 70 percent were confident they could find a quality job if they looked. Recently, only 45 percent thought they could land such a job.
Stocks often are seen as a source of anxiety to be tolerated, not the pleasurable past-time of the Nasdaq's prime. While 67 percent of individuals invested in the market at the peak of stock affection, now it's only about 54 percent. Many who invest now do it through workplace 401(k) plans rather than "playing the market."
It's not just the crash of the Nasdaq that left many Americans disenchanted with the markets. The last 15 years have been extraordinarily harsh on investors.
If people found their courage after the Nasdaq debacle, they were beaten down again between 2007 and 2009 when the Standard Poor's 500, which included a much wider variety of stocks than the Nasdaq, inflicted a 57 percent loss.
"It's hard to be ebullient at any time in the future when you've seen what can happen," Newport said. He figures it will be a long while before people escape the nervousness.
In 2009, 2010, 2011 and 2012, massive amounts of money were pulled out of stocks and poured into bonds even though analysts warned that bonds could become losers.
Their behavior showed "a disdain for (stocks)" said Tobias Levkovich, analyst for Citigroup. In 2013, investors ventured back into stocks again but retreated last year despite the stock market gaining more than 13 percent.
Even the slightest tinge of poor economic news or unrest in the world can make individuals jittery again, said George Walper, president of the Spectrem Group, a firm that conducts monthly surveys of affluent investor confidence. They increase cash as a precaution or simply stay on the sidelines.
Hedge funds and institutions such as pension funds tend to be the primary drivers of the market now.
Despite reluctance to participate in the stock market recently, the Nasdaq climbed to 5,008 on Monday and the Standard Poor's 500 and Dow Jones Industrial Average each made new record highs. Tuesday the Nasdaq closed at 4,979.
But for individuals who see the Nasdaq's return to 5,000 as an ominous sign, analysts have been emphasizing that there is less risk now than 2000.
Then, stocks that weren't making any profit and often little revenue became extraordinarily expensive -- a condition that makes stocks risky. Even the broader index, the S 500, was ultra expensive, with stocks priced at 29 times their profits.
Now, the S 500 is pricey at about 20 times earnings, not the ridiculous levels that set off the tremendous plunge of 2000.
"Valuations is our biggest headwind this year," said Jack Ablin, chief investment officer of BMO Private Bank. "But that doesn't mean a crash."
It could mean U.S. stocks will have difficulty climbing further this year and will be vulnerable to a downturn if anything shakes confidence in the economy or the stock market. Ablin favors European and Japanese stocks because those markets are not as pricey.
But the fact that investors remain skeptical of the markets and worry about downturns such as 2000's and 2007's "probably is healthy for the market," Ablin said.
That keeps prices from rising to the crazy levels of 2000.
"We've learned," Ablin said.
gmarksjarvis@tribpub.com
