Once again, on the last trading day of 1999, a bombshell announcement couldn't derail the momentum of the U.S. stock market.
After waking to the news of Russian President Boris N. Yeltsin's resignation, traders sent the Dow Jones industrial average, the Standard & Poor's 500 index and the Nasdaq composite index to record highs. The major stock indexes produced double-digit returns for the fifth year in a row.
"This year was extraordinary, exuberant and exciting, to say the least," said Alan R. Ackerman, senior vice president at Fahnestock & Co., a New York brokerage. "Led by the strengthening of the technology sector, market momentum outran the expectations of virtually every analyst on Wall Street."
The Dow Jones industrial average of 30 blue-chip stocks rose 44.26 points yesterday to 11,497.12, up 25.22 percent for the year. Standard & Poor's 500 index, a broader measure of the market, rose 4.78 points to 1,469.25, a 19.53 percent gain for the year. The Sun-Bloomberg Maryland index of Maryland-based companies hit a high of 224.59, an increase of 14.39 percent.
The big story was the Nasdaq composite index, heavily weighted with large technology companies, which rose 32.44 points yesterday to end the year at 4,069.31. That's an 85.59 percent increase for the year, the largest in Nasdaq's 28-year history.
"The most eye-popping event is the performance of the Nasdaq over the last two months," said Joseph Cirelli, a broker with Salomon Smith Barney in Baltimore.
The Nasdaq, which started the year at 2,192.69, reached 3,000 in early November. Thirty-eight trading days later, the index closed above 4,000 for the first time.
"Anybody saying they expected what happened in the Nasdaq would not be telling the truth," said David Straus, a senior portfolio manager for J. L. Capital Management Inc. in Washington.
Investors snatched up technology, telecommunications and Internet-related stocks last year at a frantic pace.
The year's biggest gainer in any sector of the market was Qualcomm Inc., which rose 2,619 percent.
This week, the stock of Qualcomm, which develops and manufactures telecommunications technology, jumped $156 in one day after an analyst predicted that the stock would double to $1,000 a share in the next 12 months. The stock traded as high as $740.125 this week before its 4-for-1 split Thursday.
The stock closed yesterday at $176.125, up $14.375. The San Diego company began last year with a market capitalization of about $4 billion and ended the year at $116 billion.
Outside of technology, Straus said, investors stuck with well-known large-capitalization stocks such as Home Depot, which closed at $68.5625, up 68.5 percent for the year; Wal-Mart Stores, which closed at $69.125, up 70.45 percent; General Electric, which closed at $154.75, up 53.6 percent; and Citigroup, which closed at $55.6875, up 70 percent.
Political talk about Medicare reform and price controls on prescription drugs steered investors away from pharmaceutical stocks. Three interest-rate increases by the Federal Reserve Board last year dampened most financial-services stocks and other investments sensitive to rate increases, experts said.
"The bond market has been a pretty bad place to be," said Andrew M. Brooks, head of equity trading at T. Rowe Price Associates Inc. in Baltimore.
Fears of a problem at year's end if computers read 2000 as 1900 cropped up in spring and early summer, weakening software company stocks, experts said. Those stocks recovered as the fears abated during the second half of the year.
Small-capitalization stocks, which were down 3.45 percent in 1998 as measured by the Russell 2,000 index, rebounded last year.
The Russell 2,000, a broad measure of small-company stocks, ended the year at 504.75, up 19.62 percent.
Much of the surge occurred after mid-October, when investors turned to small-cap stocks, many of them technology-related, after large technology companies' stock got too expensive, said Patrick Buttarazzi, a financial adviser with Prudential Securities Inc. in Baltimore.
Companies worldwide sold a record $3.22 trillion in stocks and bonds last year.
Cirelli said many factors combined last year to prolong the bull market, including low inflation, strong productivity and economic growth, and federal budget surpluses.
"Ask someone about surpluses five or six years ago, and they would have thought you were from Mars," he said.
Some market experts are concerned about the technology and Internet euphoria and that a small number of stocks in this sector are fueling the market's remarkable surge. Many wonder whether the technology momentum can be sustained this year.
"It's been a good game to play. People have made a lot of money. The media has helped fan the impression that it's a casino that's open and you cannot lose money," said Brooks. "At some point, the music will stop, and it's going to be ugly."
Some analysts expect technology stocks to cool off as investors turn their attention to other sectors. Technology stocks could fall 30 percent this year, but even then the retreat won't "even scratch the surface," Straus said.
The likelihood of more interest-rate increases, possible hangovers from any year 2000 computer problems and the presidential election could affect this year's market performance. Some investment experts predict that the market will revert this year to a more typical return of 10 percent to 12 percent.
"It's been a bountiful year, and the year 2000 will likely be a good year, but not quite as bountiful," Ackerman said.
Many investment experts face the problem of reining in clients' expectations, particularly newer investors who have never known a prolonged bear market.
"It's an effort to manage their expectations," Cirelli said. "People hear about Qualcomm up $156 and want to own the next one."