NEW YORK — The NASDAQ Composite Index crashed in 2000, declining almost 40 percent. You need to go back more than six decades to the Great Depression to find a worse one-year performance by a major U.S. stock market index.
The threat of rising inflation and interest rates that would slow the economy set off a stampede out of high-priced technology stocks. Dell Computer Corp., the best performing stock in the Standard & Poor's 500 Index in the 1990s, lost two-thirds of its value in 2000, while Internet search service Yahoo! Inc. slid 86 percent.
This year marked the end of an era: The S&P 500 and the Dow Jones Industrial Average are on track for their biggest drops in almost 20 years, and all three major indexes will post losing years for the first time in a decade. The S&P's decline brings to an end five years of annual returns of 20 percent or more.
"You won't see that again for a long time, maybe in our careers," Loomis Sayles & Co. money manager Christopher Ely said of the surging market in 1999 and early 2000. "The dot-com explosion, the IPO craze — that just wasn't sustainable. Expect 10 percent returns next year, that's what we tell our clients."
Ely's Loomis Sayles Aggressive Growth Fund returned 199 percent last year, and 10 weeks into 2000 he and his co-managers were on track to do it again. They steered the portfolio to a 55 percent advance amid a surge in stocks such as e-mail company Critical Path Inc. and NaviSite Inc., which hosts Internet sites.
"It was exhilarating," said the 45-year-old money manager. "The fervor had become a mania."