Twenty-four years ago, the NASDAQ Composite reached its all-time high of 5,048.62 points, only to see the explosion of its bubble three days later. How did it happen? This video from The Plain Bagel explains it in five minutes.
The Early Days of the Web
In early 1993, barely 2.3 percent of the U.S. population was online. The technical barriers were too complex, but in January of that year the first beta of the Mosaic browser appeared, and in April its version 1.0 debuted. Web traffic jumped 1,000 percent, and with interest rates at their lowest since the 1970s, the idea of turning the web into a new space for business began to gain traction… quickly.
Inflating a Bubble
The video explains that the true gold rush materialized on August 9, 1995, when Netscape Communications Corporation had its initial public offering. Netscape had already taken a good portion of Mosaic’s market, but the market gave it unprecedented support, sending its stock price soaring. On its first day alone, Netscape went from $28 to over $58 (equivalent to a market capitalization of $2.7 billion)… with a small detail: it was losing money.
The “me too” effect was like a drug. Investors placed money on everything within reach as long as it had a domain at the end. The strategy was to spend money to grow the business, and profits would come later, a vision fueled by the banking industry itself. Advertising, acquisitions, office complexes, bonds, parties, vacations, sock puppet pets (no joke), public offerings without products. Growth at any cost. In 1999, the value of the NASDAQ Composite had doubled. Telecom companies entered the battlefield, investing millions in infrastructure. The Y2K scare frightened many people, but it also stimulated the sale of new hardware.
On March 10, 2000, the NASDAQ Composite registered 5,048.62 points—529 percent growth in just five years… and the limit of the bubble. Rumors of possible changes in U.S. monetary policy were already creating pressure on their own, but on March 13 the bomb dropped: Japan had entered recession again. eBay and Yahoo! abandoned their plans to merge. Accusations of monopolistic practices against Microsoft were multiplying, generating even more noise. As the video indicates, by April of that year, the situation went from “Mamma Mia” to “Red Wedding”, with NASDAQ losing 25 percent in a week.
By November, Pets.com blew up—nine months after its public offering. More than 1.7 trillion dollars (our billions) vanished. In March 2001, recession hit the United States. The September 11 attacks accelerated the decline. Enron exploded in October, WorldCom did the same in June 2002, and Adelphia followed a month later. In October 2002, NASDAQ hit its bottom of 1,114.11 points, losing 78 percent from its peak. NASDAQ needed fifteen years to return to the same level as the bubble. Companies like eBay and Amazon became titans, but the rest disappeared or fell into irrelevance.
Today, the NASDAQ Composite has crossed the 16,000-point barrier, fueled by the hype around artificial intelligence...
