Investing.com -- The dot com bubble of the late 1990s was a period of extraordinary growth and speculation in technology stocks, culminating in a dramatic crash in early 2000.
In a report published Monday, Deutsche Bank (ETR:DBKGn) offered a detailed breakdown of the events that led to the bubble’s burst and its aftermath.
One of the most striking aspects of the dot com crash was the lack of a clear fundamental trigger. As Deutsche Bank notes, “there’s no fundamental driver behind the initial selloff.”
“Once it began in earnest, selling simply led to more selling, just like many financial bubbles throughout history. It didn’t take a big catalyst to begin,” it added.
The downturn accelerated rapidly, with the Nasdaq falling more than a third in just over a month and ultimately plunging 78% from its peak by October 2002.
The origins of the bubble trace back to the mid-1990s, when internet adoption surged and a wave of high-profile initial public offerings (IPOs), including Netscape in 1995 and Amazon (NASDAQ:AMZN) in 1997, captured investor enthusiasm.
By 1999, speculative fever had taken hold, and the Nasdaq soared by 86% over 1999, which remains the sharpest annual gain in the index’s history. At the same time, valuations reached record levels, with the S&P 500’s Cyclically-Adjusted Price-to-Earnings (CAPE) ratio peaking at 44.2, surpassing even the pre-1929 crash levels.
The market reached its peak on March 10, 2000, when the Nasdaq closed above 5,000. However, just days later, a series of negative developments triggered the initial declines.
On March 13, Japan reported a deeper-than-expected recession, and by March 15, the Nasdaq had dropped 9.2% over three consecutive sessions. The index briefly stabilized, but a wave of selling resumed by late March, driving the Nasdaq into correction territory.
By April, the selloff had intensified. On April 14, the Nasdaq fell 9.7% in a single day—its worst decline since Black Monday in 1987—after inflation data sparked fears of further Federal Reserve rate hikes.
“By this point, the Nasdaq was down by over a third in the space of just over a month,” Deutsche Bank noted.
While the market saw brief recoveries, the broader economic picture darkened. Growth slowed, and by late 2000, corporate earnings disappointments from major tech firms, including Intel (NASDAQ:INTC) and Apple (NASDAQ:AAPL), triggered further declines. Political uncertainty following the contested 2000 US presidential election and high oil prices added to the pressure.
The downturn turned into a full-blown collapse in 2001 as the US economy entered a recession. The Fed responded with aggressive rate cuts, but the Nasdaq’s decline continued, exacerbated by the September 11 attacks and deteriorating economic indicators.
The final low came on October 9, 2002, with the Nasdaq down 78% from its peak. It would take until 2015 for the index to reclaim its dot com-era high.