The dot-com bubble was a stock market bubble caused by excessive speculation in technology and Internet-related companies in the late 1990s, a period of massive growth in the use and adoption of the Internet.
During the crash, many online shopping companies, such as Pets.com, Webvan, and Boo.com, as well as several communication companies, such as Worldcom, NorthPoint Communications, and Global Crossing, failed and shut down.
Between 1995 and its peak in March 2000, the Nasdaq Composite stock market index rose by 400%. On August 11, 1999, a Total Solar Eclipse occurred with a magnitude of 1.029. On that trading day, the U.S. stock markets staged a solid rally, encouraged by buying in the technology sector. Bargain hunting and the prospect of strong growth among technology companies, after Cisco Systems reported healthy earnings the day prior to the Solar Eclipse, all helping to lure investors back into stocks.
The release of the Federal Reserve’s Beige Book — a survey of the economy conducted eight times a year — also gave the stock market bullish push. The Dow Jones industrial average jumped 132.65 points, or 1.2 percent, to 10,787.80. The S&P 500 index gained 20.50, or 1.6 percent, to 1,301.93. The Nasdaq composite, home to many of the high-tech sector’s premier names, jumped 74.87 points, or 3 percent, to 2,564.98.
Cisco Systems (CSCO) the largest computer-networking company in the world and a leader on the Nasdaq, posted a fiscal fourth-quarter profit of 21 cents per share late Tuesday. Several Wall Street analysts jumped to raise their earnings forecasts for the company going into 2000, while Wachovia upgraded the stock to “strong-buy” from “long-term buy.”
Between August 1999 and June 2000, insiders at dot-com companies cashed out to the tune of $43 billion, twice the rate they’d sold at during 1997 and 1998.
213 days from the start date of the Solar Eclipse the Nasdaq Index peaked, on March 10, 2000, at 5048 (nearly double over the prior year). Right at the market’s peak, several of the leading high-tech companies, such as Dell and Cisco placed huge sell orders on their stocks, sparking panic selling among investors.
By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market capitalization since the peak. At its trough on October 9, 2002, the NASDAQ-100 had dropped to 1,114, down 78% from its peak, giving up all its gains during the bubble.
Some companies, such as Cisco, whose stock declined by 86%, and Qualcomm, lost a large portion of their market capitalization but survived, and others, such as eBay and Amazon.com, also lost value but recovered quickly.
After venture capital was no longer available, the operational mentality of executives and Wall Street investors completely changed. A dot-com company’s lifespan was measured by its burn rate, the rate at which it spent its existing capital. Many dot-com companies ran out of capital and went through liquidation.