Nasdaq 5000: A Gape-Jawed Wall Street Tries to Make Sense of the Move

You know, once every month or so, it's nice to sit back and reflect on how far the Nasdaq Composite Index has come.

Yes, the Nasdaq has managed to punch through the latest in its epic series of milestones, crashing through the 5000 barrier on broad strength in its largest components. Wireless telecom firm Nextel (NXTL Quote) rose 11.6%, while Cisco (CSCO Quote) extended further into its own record territory, flying up 5.5% amid unsubstantiated rumors that it would replace Procter & Gamble (PG Quote) in the Dow Jones Industrial Average.

Resistance was futile a long time ago. Now it's becoming downright perverse.

"I was just looking at a handful of companies whose presentations I attended at the American Electronics Association meeting out in Colorado in November, all of which I thought were pretty expensive at the time," said Charles Crane, chief market strategist at Key Asset Management. "Here we are, three months later, and you know what? These stocks, at a minimum, have doubled. And frankly, I can't find evidence in any case that their business has accelerated at a pace faster than even the most aggressive have anticipated."

Nasdaq Through the Years
Date	Event
Feb. 8, 1971	Trading begins on the National Association of Securities Dealers Automated Quotation System, or Nasdaq.
Oct. 13, 1971	Intel goes public.
1982	Nasdaq introduces the National Market System, predecessor of today's Nasdaq National Market.
Dec. 6, 1984	Nasdaq receives its first blue-sky exemption, in Georgia.
March 13, 1986	Microsoft goes public.
1990	OTC Bulletin Board created.
1994	Nasdaq surpasses the New York Stock Exchange in annual share volume.
October- November 1994	The Justice Department and the Securities and Exchange Commission launch price-fixing probes of Nasdaq dealers.
July 17, 1995	Nasdaq Comp's first close above 1000.
August 1996	The NASD settles with the SEC, agreeing to spend $100 million to prevent Nasdaq abuses.
April 9, 1998	The NASD and American Stock Exchange boards approve the Nasdaq-Amex merger.
July 16, 1998	Nasdaq Comp's first close above 2000.
Nov. 1, 1999	Microsoft and Intel enter the Dow Jones Industrial Average.
Nov. 3, 1999	Nasdaq Comp's first close above 3000.
Dec. 29, 1999	Nasdaq Comp's first close above 4000.
March 7, 2000	NASD seeks delay in decimalization.
March 9, 2000	Nasdaq Comp's first close above 5000.

The song remains the same, and the pitch just keeps on escalating. The only stocks the market is willing to bet on are those boasting the highest revenue growth. And the outperformance of the high-growth tech and biotech sectors begets further outperformance, as everyone from IRA-padding baby boomers to T1-linked 20-somethings scrambles to redirect their fund contributions from value to growth. Indeed, the bifurcation has been dramatic enough to reduce the 21st century stock market to a mere two sectors: New Economy and Old Economy.

It's an unprecedented market on Wall Street. And the sheer extremity of the situation has many observers nervous -- just like they've been for months now.

"Clearly you just have to be very careful in the technology area now," said Grace Messner, portfolio manager at Cypress Capital Management in Wilmington, Del. "You're in a market where everything has cracked but technology. When you've got the drugs and the Procter & Gambles going, you've got a shoe dropping, as it were."

Timing the top for tech hasn't been a well-paying endeavor, to say the least. Most agree that things won't normalize until there's some disruption in the dynamic of money flows into the market.

"Frankly, I'm at a loss to figure out what could hold these stocks back," Crane said, "except the notion that in the next four or five weeks, we will have passed the period of the year where cash flow typically peaks. The first quarter is generally the best quarter for cash coming into the market."

Something for all those proverbial fat cats to think about while they're assembling their capital gains for April 15.