This is a tale of two stock markets -- two very different markets that both have the same name.
One, the happy one, is loaded with soaring technology stocks, some of them up 1,000 percent or more in 1999. The other market, full of sad drug companies, manufacturers and financial firms, doesn't have a single gainer this year. Its best stocks have gone nowhere; its worst are down 90 percent, having lost most of their worth.The two markets, each containing almost the same number of stocks, are the two halves of the NASDAQ stock market.
Taken as a whole, the NASDAQ Composite Index is up an astounding 71 percent since the year began, by far the biggest gain in NASDAQ history, or, for that matter, in the history of just about any of the nation's stock indexes.
But NASDAQ divides almost evenly into two distinct places, according to data provided by Birinyi Associates, Westport, Conn. Half the market is up. In a year when many analysts bemoan the "narrowness" of the market, a much wider group of stocks has soared through the roof this year than many people realize. A total of 997 stocks, more than one NASDAQ stock in five, have at least doubled in price this year. Such huge, broad gains are unheard of. Of the stocks that are up on NASDAQ, the average stock has more than doubled, gaining 151 percent.
And yet, despite such heady gains on one side of the market, nearly half of all NASDAQ's stocks have actually fallen in price this year. Of the losers, the average decline is almost 32 percent.
"It really has been a case of the haves and the have-nots," says Sally Anderson, portfolio manager at Kopp Investment Advisors, Edina, Minn.
Investors are selectively buying the stocks they think will hold up in the face of rising interest rates and stiffening business competition. In many cases, that means tech stocks. Some of the winners are thought to be so competitive they can post big-time earnings, or at least strong revenue growth, no matter what. But many of the winners -- around 47 of the 100 biggest gainers on NASDAQ, in fact -- aren't just tech companies, they are closely linked to the Internet. Many of them aren't expected to show any profits at all for the foreseeable future. For that select bunch, investors don't mind. They believe, rightly or wrongly, these stocks will be part of the growing revolution in information technology and communications, and they want to own a piece of the revolution.
The stocks that aren't part of the revolution, that have failed to deliver on promises or that are having trouble boosting prices and profits in the face of cutthroat competition? No one wants them, not even if they are cheap. And they are getting hammered. Without the tech winners, the NASDAQ market shows little if any gain.
"There is a whole group of stocks that are just lying there and not doing anything," Anderson says. "And it is my impression that the common denominator is earnings growth. Most of those that are down have shown disappointing fundamentals. If they have any growth it is only modest growth."
Skeptics shake their heads with worry that the gains represent an enormous bubble, which will leave devastation behind when it bursts. And investors are ignoring the skeptics.