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The NASDAQ-100 - Is this time really different?

August 2019 Update

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The NASDAQ-100® -
Is this time really different?

- Michael Mack, Portfolio Manager

As the NASDAQ-100® continues to reach new highs, many investors have flashbacks of the tech bubble in the late 1990s and worry history could repeat itself. There is no guarantee that a severe decline won’t happen again, but the fundamentals this time around suggest we’re in better shape than we were back then.


Earnings lead to a growing economy

The tech bubble in the late 1990s saw the NASDAQ-100® soar to record highs as investors flocked to the high growth tech darlings (Cisco, Microsoft, Dell, Intel) before collapsing 80% over the next 3 years. As today’s investors flock to high growth FAANG stocks (Facebook, Apple, Amazon, Netflix, Google), the present-day NASDAQ-100® is again hitting record highs, but that is where the similarities end.

Source: FactSet, NASDAQ

Today’s NASDAQ-100® Has Solid Fundamentals

During the tech bubble, fundamentals of stocks in the NASDAQ-100® were not strong enough to support high stock prices and valuations. At the end of 1999, the NASDAQ-100® was trading at 73x earnings with a measly 0.75% free cash flow yield. Currently, the NASDAQ-100® is only trading at over 26x earnings with a 4.35% free cash flow yield. High free cash flow is an indicator of a company’s financial strength. Specifically, it is the cash remaining after a company has paid expenses, interest, taxes and long-term investments. Free cash flow yield (free cash flow divided by enterprise value) shows whether a company is generating more cash than it needs to run the business and if it can invest in growth opportunities. Without available cash to reinvest in a business, it is difficult for it to maintain its growth. This may have contributed to the downfall of the NASDAQ-100® the first time.

Source: FactSet, NASDAQ

In addition to having cheaper valuations and better free cash flow yield this time around, the NASDAQ-100® has better sales and earnings with a higher market cap. Looking at the top 10 companies now and then, the NASDAQ-100® is healthier than it was during the tech bubble. These top 10 show how far the NASDAQ-100® has come.

  1. Sales, earnings, and free cash flow have increased more than eight times.
  2. Market cap has nearly doubled.
  3. Seven of 10 companies now pay dividens as compared to one of 10 in 1999.
  Top 10 Total
from 12/31/99
Top 10 Total
from 6/30/17
% Change from
Now to Then
Sales (mil) $119,948.0 $1,285,901.00 972.05%
Earnings (mil) $21,217.0 $249,825.00 1077.48%
Free Cash Flow (mil) $25,993.80 $239,044.00 819.62%
Dividend Paying Companies 1 6 500.00%
Market Cap (mil) $1,660,075.1 $4,723,812.06 184.55%

Source: FactSet, NASDAQ. There is no guarantee any company will continue to pay dividends.

The market is still unpredictable

Despite what the numbers say, there is always a chance the market will do something unexpected. Clearly a lot has changed in the NASDAQ-100® since 1999. The fundamentals now back the price and the valuations are reasonable. However, 10 years into a bull market, investors would be wise to consider a risk management strategy when investing in the NASDAQ-100®, a historically more volatile index.


The Pacer Trendpilot® ETFs use a rules-based risk management strategy to alternate between equities and t-bills based on the benchmark index and its 200 day moving average.

Pacer Trendpilot™ European Index ETF Pacer Trendpilot® 100 ETF

The Pacer Trendpilot® 100 ETF (PTNQ) implements this strategy with exposure to the NASDAQ-100®, aiming to participate in the market when it is trending up, maintain some exposure during short-term market declines and move to 3-month US T-Bills when it is trending down.




This document does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Please consult with your financial advisor and tax advisor before investing.

This document is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This document represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. The user of this information assumes the entire risk of any use made of the information provided herein. There is no guarantee this strategy will be successful.

Weighted average market cap is the sum of each company’s weight multiplied by its market cap.

P/E ratio – a fundamental measure commonly used to determine if an investment is valued appropriately. Each holding’s P/E is the latest closing price divided by the latest fiscal year’s earnings per share. Negative P/E ratios are excluded from this calculation.
The NASDAQ-100® Index includes approximately 100 of the largest non-financial securities listed on The NASDAQ® Stock Market based on market capitalization. The NASDAQ-100® Index comprises securities of companies across major industry groups, including computer, biotechnology, healthcare, telecommunications, and transportation. However, it does not contain securities of financial companies, including investment companies. The NASDAQ-100® Index was developed by NASDAQ OMX®. The NASDAQ-100® Total Return Index is a total return version of the NASDAQ-100® and reflects the reinvestment of dividends paid by the securities in that Index. The Pacer NASDAQ-100® Trendpilot® Index is co-owned by Index Design Group, LLC and Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”). The NASDAQ-100® is a registered trademark of the Corporations and is licensed for use by Index Design Group, LLC. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the product(s).