NASDAQ Must Decline 60% More to Reach Fair Value

The market capitalization of the NASDAQ peaked on February 19th at an all-time record high of $14.725 trillion and has since declined by $1.873 trillion or 12.72% to $12.852 trillion. NIA has just published two exclusive, must see charts showing how the current fair value of the NASDAQ is $5.169 trillion, which means the NASDAQ is likely to lose 59.78% of its current value!

Back on March 10, 2000 at the peak of the dot-com bubble, the NASDAQ was worth a then all-time high market cap of $6.601 trillion. Based on U.S. GDP at that time of $10.11 trillion, the NASDAQ's fair value was $2.395 trillionOver the following 13 months, U.S. GDP grew by 4.85% to $10.6 trillion, thereby increasing the NASDAQ's fair value to $2.511 trillion vs. the NASDAQ simultaneously losing 63% of its value to close April 4, 2001 below fair value with a market cap of $2.442 trillion!

After peaking at a valuation of $6.601 trillion on March 10, 2000, it took the NASDAQ 171 months to return to that valuation. Between March 10, 2000 and June 20, 2014, the NASDAQ's market cap saw zero growth despite U.S. GDP growing by 72.2% to $17.41 trillion! 

From June 20, 2014 through February 19, 2020, the NASDAQ's market cap increased 4.86X more than U.S. GDP, thereby blowing up a larger bubble than the dot-com bubble! Absolutely nobody in the financial mainstream media noticed how on February 5, 2020, the NASDAQ's market cap as a percentage of U.S. GDP reached a new all-time record high... surpassing the previous record set nearly 20 years earlier on March 10, 2000 of 65.29%.

The NASDAQ Market Cap/U.S. GDP Ratio peaked on February 19th at 67.49% a full 220 basis points higher than the peak of the dot-com bubble. To put this into perspective, a NASDAQ Market Cap/U.S. GDP Ratio of 67.49% is a full 3 standard deviations above the 34-year average of 24.5%! In other words, it was mathematically impossible for the NASDAQ to continue rising higher and last week's decline was long overdue and inevitable.

In recent days, nearly every analyst on CNBC has been calling for investors to "buy the dip" saying that the Coronavirus crisis will soon be solved... and we will look back at this moment as the biggest buying opportunity since the 2009 financial crisis! In reality, we still have a NASDAQ Market Cap/U.S. GDP Ratio today of 58.91%, which is 4.45X higher than the 2009 financial crisis bottom of 13.23%. To retest that bottom, the NASDAQ would need to decline an additional 77.5% from current levels!

The crashing stock market is totally unrelated to the Coronavirus, but the Coronavirus is a very convenient excuse for an impotent Federal Reserve that is losing control and all out of options.