The Nasdaq is closing in on its first four-quarter decline since the dot-com crash

A lot has changed in technology since the dot-com boom and bust.

The internet has gone mobile. The data center has gone to the cloud. Cars are now available Driving themselves. Chatbots are available Pretty smart.

 

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But one thing remains. When the economy turns, investors rush to exit. Despite a furious rally on Thursday, the tech-heavy Nasdaq ended the fourth quarter in the red, marking the longest such streak since the dot-bomb period of 2000 to 2001. – Decade history was in 1983-84 The video game market collapsed.

It was the first time this year that the Nasdaq fell in all four quarters. It fell 9.1% in the first three months of the year, followed by a second quarter decline of 22% and a 4.1% decline in the third quarter. It fell 1% in the fourth quarter after falling 8.7% in December.

For the full year, the Nasdaq fell 33%, its steepest decline since 2008 and its third-worst year on record. The decline occurred 14 years ago during the financial meltdown caused by the housing crisis.

“It’s very hard to be bullish on technology right now,” Gene Munster, managing partner at Loop Ventures, told CNBC’s Brian Sullivan on Wednesday. “You feel like you’re missing something. You feel like you’re not getting the joke.”

Other than 2008, when the dot-com bubble burst, the Nasdaq’s only worst year was 2000, when the index fell 39%. Early dreams of the Internet taking over the world have evaporated. Pets.com, infamous for its sock puppet, went public in February of that year Closed Nine months later. EToys held its IPO in 1999 and grew its market capitalization to nearly $8 billion. Sunk in 2000, losing all of its value before going bankrupt early next year. Delivery company Kozmo.com never got its IPO off the ground, Filed March 2000 and withdraws its offering August.

Amazon 2000 was the worst year, with an 80% drop. Cisco 29% fell, and the following year it fell 53%. Microsoft Apple fell more than 60% and Apple more than 70%.

The parallels today are more stark.

In 2022, the company was formerly known Facebook It lost two-thirds of its value Investors balked In a future metaverse. Tesla The carmaker has long been valued like a tech company, falling by a similar amount Crashed into reality. Amazon Abandoned in half.

The IPO market Not this year, but many companies that went public at astronomical valuations last year lost 80% or more of their value.

Perhaps the closest analogy to 2000 is the crypto market this year. Digital currencies Bitcoin And Ether Down more than 60%. It was worth more than $2 trillion destroyed Speculators have left crypto. Many companies have gone bankrupt, most notably crypto exchange FTX collapsed After hitting a $32 billion valuation earlier in the year. Founder Sam Bankman-Fried now faces Charges of criminal fraud.

The only major crypto company traded on Nasdaq Coinbase, which went public last year. In 2022, its shares fell 86%, wiping out more than $45 billion in market capitalization. In total, Nasdaq companies have shed $9 trillion in value this year, according to FactSet.

At its peak in 2000, Nasdaq companies were worth a combined $6.6 trillion and had lost about $5 trillion by the time the market crashed in October 2002.

Despite the similarities, things are different today.

For the most part, the decline of 2022 had less to do with businesses disappearing overnight and more to do with investors and executives waking up to reality.

Companies are Reduction After a decade of growth fueled by cheap money, the reassessment is underway. As the central bank raised rates to tame inflation, investors stopped placing a premium on rapid unprofitable growth and began demanding money creation.

“If you’re just looking at future cash flows without profits, those are companies that have done well in 2020 and are not defensible today,” Shannon Saccoccia, chief investment officer at SVB Private, told CNBC’s “Closing Bell: Overtime” Tuesday. “The story of technology failure will prevail for the next couple of quarters,” Saccocia said, adding that “certain parts of the sector will have light at the end of the tunnel.”

The tunnel he describes is a series of rate hikes by the central bank that will only end if the economy enters a recession. Either situation is troubling to the tech giant, which thrives when the economy is in growth mode.

In mid-December, the Fed raised It raised its key interest rate to a 15-year low to a target range of 4.25% to 4.5%. The ratio was anchored near zero in the years following the pandemic and financial crisis.

Technology investor Samath Palihapitiya told CNBC In late October, more than a decade of zero interest rates “distracted the market” and “allowed maniacs and asset bubbles to form in every part of the economy.”

No one has taken advantage of the cheap money available, pioneering investments in special purpose acquisition companies (SPACs), blank-check companies hunting to take companies public through reverse mergers.

SPACs took off because of the lack of yield on fixed income and strata valuations that attracted technology. raise More than $160 billion in US transactions by 2021, more than double the previous year. SPAC Research. That number dropped to $13.4 billion this year. CNBC Post SPAC IndexIncluding the largest companies launched through SPACs in the past two years, it lost two-thirds of its value in 2022.

As all investors know, predicting a bottom is a fool’s errand. No two crises are the same, and the economy has changed dramatically since the 2008 housing crash, and even more so since the 2000 dot-com crash.

But some market forecasters expect a rebound in 2023. Loup’s Munster said it would keep 50% of its funds in cash, and “if we think we’re down we’ll deploy today.”

Duncan Davidson, founding partner of venture firm Bullpen Capital, expects more pain. He looks at the dot-com era, which took two years and seven months to go from peak to trough. As of Friday, it had been more than 13 months since the Nasdaq hit its all-time high.

For private equity investors, in 2023, “we’re going to see a lot of bargain basements trickling out companies,” said Davidson, who started in tech investing in the 1980s. “We may have two years to go,” he said, to get to the bottom of the market.

See: The IPO market is as bad as it was in 2001