- The Washington Times - Thursday, December 30, 1999

The meteoric rise of technology stocks yesterday propelled the Nasdaq composite index over 4,000 for the first time, and put it on track for the biggest yearly gain in the history of U.S. stock indexes.

With a gain of 84 percent so far this year, the Nasdaq already has surpassed the previous record of 81.5 percent set in 1915 by the Dow Jones Industrial Average. The Dow and other major stock indexes also hit new records yesterday in a powerful year-end rally, but are nowhere close to rivaling the Nasdaq's stunning gains for the year.

In what has become a typical performance for the upstart electronic stock index, the Nasdaq yesterday hurdled decisively over the 4,000 mark after testing it four times in as many days of highly volatile trading. It ended up 69 points at 4,041, sprinting through the last 1,000 points in only two months.

The Nasdaq reflects the stellar performance of the big-name technology firms that make their home in the electronic stock market. Yesterday, its leap over 4,000 was driven by the stock of QualComm Inc., a leading developer of cellular phone technology.

One of the market's leaders with gains of nearly 2,000 percent this year, QualComm stock rocketed $156 to $659 after a PaineWebber Inc. analyst predicted that 85 percent of phones sold in the next decade will use technology developed by the San Diego company.

"This market is a super bull market" like the one that reigned during the 1950s and 1960s, said Ralph Acampora, stock analyst at Prudential Securities in New York. He expects another outstanding performance by the Nasdaq next year, saying it could eclipse 5,000.

As in the 1950s, the gains in today's market are not shared broadly by all stocks indeed, many are actually down for the year but are due to the exaggerated values of a handful of leading stocks, analysts say. Today's leaders are technology stocks, bellwethers of the new economy.

"The new sizzling leaders are the companies with the new concepts, the 'story' stocks with unbelievable new expectations," Mr. Acampora said. These technology stocks will continue to do far better than the rest of the market next year, but that will not prevent other stocks from having their day in the sun and making more modest gains, he said.

A few other bullish analysts on Wall Street, including Jeffrey M. Applegate at Lehman Brothers, believe the stock market will eke out another year of above-normal returns next year. "Our forecast for 2000 is that the unprecedented continues to happen," Mr. Applegate said.

Mr. Applegate sees gains of 15 percent on average in major stock indexes, which all hit records yesterday. The Dow rose 8 points to 11,485, while the Standard & Poor's 500 index increased 6 to 1,463. The Russell 2000 index of smaller companies rose 8.5 to 497, its first new record since April 1998.

Many analysts are not optimistic that the Nasdaq, which stands for the National Association of Securities Dealers Automated Quotations, will be able to continue its unparalleled winning streak.

"There is clearly a bubble in the technology sector," said Edward Yardeni, chief economist with Deutsche Banc Alex. Brown. He fears the Nasdaq may suffer the same fate as Japan's Nikkei stock index, which has not yet recovered from a collapse of nearly 50 percent a decade ago that came after a meteoric rise.

Mr. Yardeni believes that widespread problems generated by the year-2000 computer bug could cause a loss of faith in leading technology stocks and precipitate the Nasdaq's downfall next year.

But even if the market charges ahead, he said, "it won't be a thundering herd. Just a small group of high-tech high-fliers. The speculative bubble will get bigger."

The investors pushing the Nasdaq and technology stocks higher often shun traditional ways of measuring a stock's value, such as comparing its price to its potential earnings stream. They say today's sky-high valuations are justified by the way new technologies are transforming business and the lifestyles of people worldwide.

But many analysts are uncomfortable particularly with the bloated prices of stocks floated by Internet companies that have not yet even earned a profit.

Cary Leahy, economist with Primark Decision Economics in New York, sees some parallels with the roaring '20s, when euphoria over the advent of radio drove the stock of RCA, among others, into the stratosphere.

"These Internet stocks are trading as if every one is going to win the beauty contest, but down the road there are going to be a lot of losers," he said.

"Investors believe they are onto a revolution that may equal the use of the railroad, the automobile or electricity. If you look at this technological tidal wave, you want to jump on it," he said.

Mutual-fund managers and other investors may have their doubts about whether technology firms will fulfill today's inflated expectations, he said, but that does not keep them from jumping on the bandwagon. "If you don't have a sexy portfolio that's laden with dot-com companies, you're a laggard," he said.

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