The second in Money Morning’s series documenting the greatest Wall Street crashes of all time…
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In Part 2 of our stock market crash history series, we examine the dot-com crash – a two-year market downturn that eviscerated more than $5 trillion in market value between March 2000 and October 2002.
From a March 10, 2000, high of 5,048.62, the index tumbled to 1,139.90 on Oct. 4, 2002, for a whopping 76.81% drop. (The Dow Jones and S&P 500 also suffered, albeit less intensely – down 27.38% and 43.19%, respectively.)
Nasdaq’s March 2000 high wasn’t seen again for 15 years, until the index closed at 5,096 on April 24, 2015.
Dot-Com Bubble Set Up Dot-Com Crash of 2000-2002
The Internet commercialized in 1995, creating a speculative bubble from 1997 to 2000.
Hype over a new industry caused investors to overlook traditional metrics like the price-to-earnings (PE) ratio, debt/equity ratio, and amount of free cash flow. People quit their jobs to become day traders. Millionaires were made overnight. Companies that barely had business plans went public.
The Nasdaq rose 290% from January 1997 to March 2000. Microsoft Corp. (Nasdaq: MSFT) and Intel Corp. (Nasdaq: INTC) became the first “new economy” companies – and the first Nasdaq issuers – to be included in the Dow Jones Industrial Average. In 1999, 457 companies went public.
When the dot-com crash followed, the IPO trend shifted dramatically:
|Number of IPOs by Year|
Of the 79 companies that went public in 2001, none doubled on the first day of trading.
According to tech merger and acquisitions analysis firm Webmergers Inc., there were between 7,000 and 10,000 Internet-related companies at the height of the bubble that had received formal funding.
But they failed in droves during the dot-com crash.
“At least 4,854 Internet companies have either been acquired or have shut down in the three years since the dot com investment boom peaked in Q1 of 2000,” the March 2003 report read. “As measured in total companies affected, Internet destinations (Web sites that offer content or e-commerce services) accounted for most of the activity, seeing 1,483 acquisitions and a whopping additional 608 failures in the three-year period.”
The report added that Internet infrastructure companies saw 1,761 acquisitions and 196 shutdowns from 2000 to 2003. Internet-related consulting firms and providers of Internet access services accounted for the remaining transactions and casualties.
Despite the failures, some companies notably survived. For example, Cisco Systems Inc. (Nasdaq: CSCO) lost 86% of its share price, but made it. And a rare few, like Amazon.com Inc. (Nasdaq: AMZN), Google Inc. (Nasdaq: GOOG, GOOGL), and eBay Inc. (Nasdaq: EBAY), weathered the storm – shares are now worth upwards of 3,000% more than they were in their dot-com bubble days.
Memories of the dot-com bubble kept investors away from new web-based businesses long into the 2000s. But the runaway popularity of companies like Facebook Inc. (Nasdaq: FB) have lured them back…
The dot-com crash of 2000-2002 is the second in our series of the greatest stock market crashes in U.S. history – the first covered the Stock Market Crash of 1929, here.
Who to Blame for 2008: The 2008-2009 U.S. stock market crash was the worst since the Wall Street Crash of 1929. The Dow Jones Industrial Average plunged 54% in 17 months. Many Americans suffered heavy losses in the stock market. Millions lost their jobs. And these 10 people are the most responsible for causing the crisis…
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