Nasdaq Stock Market - Life In The Dot-com Era

The late-1990s tech-and Internet-fueled boom in the U.S. economy gave Nasdaq a prominence in the trading world that it hadn't before enjoyed. For years in the shadow of the older and more prestigious New York Stock Exchange, the close of the 20th century watched the Nasdaq emerge as the trendiest and most-watched market in financial circles. In the 16 months beginning January 1999, for instance, the 4,600 companies listed on Nasdaq watched their market capitalization skyrocket 150 percent to $6.6 trillion. Nasdaq rode the strength of such high-tech stalwarts as Microsoft, Intel, and Cisco, as well as the fleet of dotcom startups, to position itself as the market of the future and the financial hub of the New Economy, where the companies engineering economic growth were listed.

However, as a barometer of the dot-com economy, the Nasdaq was a bearer of bad news in the early 2000s. Following the dot-com crash of March 2000 and the subsequent nosedive of the Nasdaq—the market lost 40 percent of its value in 2000&mdahs;-a number of Internet companies were in danger of being delisted from Nasdaq due to stock prices that dipped below minimum requirements. Since the investment funds that were filtered through Nasdaq were so vital to most of the Internet companies, delistings could spell more doom and gloom for dot-coms. Other companies, such as the online brokerage E*Trade Group Inc., lost confidence in Nasdaq and defected to the rival New York Stock Exchange, citing the limits of company growth in the Nasdaq field as well as the excessive degree of volatility found on Nasdaq.

Compared with the New York Stock Exchange, Nasdaq was especially volatile, marked by rapid fluctuations, even in its glory days in the late 1990s and early 2000s, largely due to the dearth of dot-com and other high-tech stocks traded on that system. Since these sectors were the primary engines behind the dramatic growth in the U.S. economy in the late 1990s, Nasdaq was marked by heavy trading from investors hoping to profit from the strong economy, but buying and selling were rapid and often erratic as market information shifted quickly.