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Nasdaq Finishes Above 3,000, Its Best Since Dot-Com Bubble

Stocks rose to new heights on Tuesday, in part on stronger retail sales data, pushing the broad market to levels last seen in June 2008 and the Nasdaq composite index to close above 3,000 for the first time since 2000.

On its joy ride heading into 2000, the technology-heavy Nasdaq reached its pinnacle of 5,048.62 on March 10 that year. Then the Internet bubble burst and the index plummeted nearly 40 percent, dropping below 3,000 that December in its worst annual loss.

Though it had been flirting with closing above 3,000 in recent weeks, it easily cleared the mark on Tuesday, closing up 56.22 points, or 1.88 percent, at 3,039.88. The index is now up nearly 17 percent this year, more than the other two main Wall Street gauges.

The Standard & Poor’s 500-stock index has risen 11 percent so far this year, ending Tuesday up 24.86 points, or 1.81 percent, at 1,395.95. The Dow Jones industrial average is almost 8 percent higher for the year, closing on Tuesday up 217.97 points, or 1.68 percent, at 13,177.68. Both of those indexes this year have already returned to the levels where they were trading not long before the collapse of Lehman Brothers in September 2008 set off a global financial crisis.

Stocks were strong all day after healthy retail sales were reported in the morning and the Federal Reserve offered a slightly more upbeat assessment of the economy. The increase accelerated after JPMorgan Chase said late in the day that it was raising its dividend and authorizing a stock buyback as news emerged that after the markets closed, the Federal Reserve would release its latest round of “stress tests” of the nation’s major banks.

Interest rates were higher. The Treasury’s benchmark 10-year note fell 26/32, to 98 28/32, and the yield rose to 2.13 percent from 2.04 percent late Monday.

Equity gains this year have been part of a general trend of solid corporate balance sheets and improving economic data. On Tuesday, the Commerce Department reported that retail sales in February were their strongest since September, rising 1.1 percent. The report included upward revisions from previous months, and it added to a positive picture of the economic recovery as the jobs market and consumer confidence improve.

“We have had a good series of economic data come out the past few months,” said Jason D. Pride, the director of investment strategy for Glenmede. Noting the European debt crisis, he said, “We don’t think we are completely out of the woods, but at least those risk-of-downside items have been greatly diminished.”

There could be some tests to the United States economy and consumers from higher gasoline prices and slowing global economy, said Jim Baird, the chief investment strategist for Plante Moran Financial Advisors, in a research statement.

The S.& P.’s close on Tuesday was its highest since June 5, 2008, when it hit 1,404.05. Consumer discretionary stocks were up the most since then, or 35 percent, while financials did the worst, down 39 percent.

The composition of the Nasdaq has changed over the years; many of the stocks from early 2000 no longer even listed. In the dot-com bubble, many companies did not have earnings, or even business models, to back up their lofty stock market valuations.

Now, a handful of the 2,500 stocks in the index in particular have produced strong performances lately, like Apple. Apple, Microsoft, Oracle and Cisco account for 20 percent of the weight of the index.

“The technology sector is as popular as ever, maybe not as crazy as it was back in the dot-com 1998-2000 time frame, but technology firms are pretty popular this time around,” said Paul Larson, chief equities strategist for Morningstar. “They also had strong underlying fundamentals to back up these prices.”

In 2000, Mr. Larson said, “a lot of the blue-chip names were trading at 35 to 40 times their earnings. They did not have earnings to back up their lofty prices, at least not enough earnings to justify, or growth to justify, a 40 times multiple on the stock. But today the earnings have grown significantly.”

Now, he said, Apple, Microsoft, Cisco and Oracle are trading in the low teens or single-digit multiples of earnings. The price/earnings ratio for the Nasdaq index over all is 24, compared with the S.& P.’s 14, while Nasdaq’s in 2000 was a sky-high 155.

The recent ascent of technology stocks is restrained compared with the dot-com boom. And the shares of social networking and media companies like Yelp and Groupon have slipped after their initial public offerings. But there are some echoes of the unqualified optimism of the Internet bubble of more than a decade ago — in the surging salaries for engineers, the accommodating accounting applied to some young companies, and the ease with which start-ups, unproved and unprofitable, can attract investment money.

Some analysts are approaching the new 3,000 level with caution, saying it might be more representative of a few companies than a trend that is happening for the collective group.

The index is weighted by capitalization, which means about 500 technology stocks that trade on the Nasdaq exchange account for more than 48 percent of the index. Apple in particular continues to have an outsize influence on the overall Nasdaq. Its share price was just over $31 in March 2000, and it subsequently fell below $7. It is now over $500, closing up nearly 3 percent to $568.10.

About 315 consumer services stocks account for about 18 percent and about 406 health care stocks for 12 percent. In a survey of stocks with market capitalizations of more than $1 billion at the end of February, Vivus Inc., a biopharmaceutical company, and Sears Holdings, the retailer, had gained more than 100 percent from the beginning of the year, making them among the top five gainers on the Nasdaq. Regeneron Pharmaceuticals, also a biopharmaceutical company, also was up nearly 100 percent.

Mark Sue, a communications technology analyst with RBC Capital Markets, said the rise of the index was not broad-based, and market share shifted from one company at the expense of others.

Apple gained market share from Research in Motion, Nokia and Motorola, for example. Cisco gained share from Nortel but in turn lost some share to Juniper Networks, which lost share to smaller players, Mr. Sue said. Ericsson gained share from smaller players only to cede margins to Chinese vendors. “So few things are constant in tech,” he added.

The Nasdaq 100, which represents the largest market capitalization companies, closed 2.7 percent higher in 2011 over 2010, while the overall index finished 2011 down 1.8 percent, Mr. Sue noted. So the gain so far this year, “while encouraging, needs some sustainability to show that the environment is better and technology innovation is accelerating,” he said.

The positive sentiment was felt across the Asia-Pacific region, too, on Wednesday, sending the Nikkei 225 up 2.1 percent by late morning in Tokyo. The benchmark indexes in Hong Kong, Singapore and Australia were 1 percent higher in morning trading, while the markets in Taiwan and South Korea gained 1.3 percent.

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Nasdaq Finishes Above 3,000, Its Best Since Dot-Com Bubble. Order Reprints | Today’s Paper | Subscribe

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