Nasdaq rides 2 trends to record as S&P 500 stalls

Published Fri, Jul 17 201511:51 AM EDT

The Nasdaq composite , which lost its cachet as a benchmark after the dot-com bubble burst in 2000, is back on top, rising to a record high Friday after tripling the return of the S & P 500 this year. The Nasdaq is riding two forces which it is more leveraged to than the S & P 500: its old friend digital innovation and, a booming biotech industry. Video streaming company Netflix , Internet commerce giant Amazon.com and gaming app maker Electronic Arts are the three biggest gainers in the Nasdaq 100 this year. Netflix shares have doubled and Electronic Arts and Amazon are both up more than 50 percent. After earnings blew past estimates Thursday night, Google joined in, pushing the Nasdaq composite to an intraday record Friday. And then there's the biotech stocks, which overcame a valuation warning last year from Fed Chair Janet Yellen and a 12 percent pullback this year to hit another record this week. The iShares Nasdaq Biotechnology ETF is up 30 percent in 2015. With these giant forces not going anywhere, most investors see Nasdaq's big gains continuing. "The scarcest resource in both society and markets is secular growth. Those are the only two sectors (digital, biotech) that can get it currently," said Nicholas Colas, chief market strategist at Convergex. "Five of 10 S & P sectors are outright down on the year." The Nasdaq composite is up nearly 10 percent already so far in 2015 compared to a 3 percent gain for the S & P 500. The two were tracking each other over the last one year until February, when the Nasdaq started to really take off. Source: FactSet Regeneron is the best performer among big biotechnology companies, but a look at all the companies in the Nasdaq composite shows that it's the small-cap biotech firms really driving the gains. Eight of the 10 top stocks in that index are related to that industry. "Biotechnology is in an enlightened time," said Mitch Goldberg of ClientFirst Strategy. "Many are no longer pie in the sky. There are incredible new drugs coming out at a rapid clip." Some investors said this is more of a story about what the Nasdaq doesn't have rather than what it does have. "Economic activity has been a disappointing in the first half of the year. This is leading 'secular growth' companies to lead those that are more economically sensitive such as industrials," said Jonathan Golub, chief U.S. market strategist at RBC Capital. Read More Investors rush to buy foreign stocks amid crisis With the Federal Reserve set to tighten interest rates this year, large sections of the S & P 500 are getting hurt. "High dividend yield groups (like) utilities, REITs and telcos have been laggards. These are largely absent in Nasdaq," added Golub. To be sure, there is reason to believe that Nasdaq may need to take a breather. Those three leaders—Netflix, Electronic Arts and Amazon—are all now trading above consensus 12-month stock price targets from analysts. Given that they are typically uber-bullish, this could be cause for concern. But most investors are still not worried yet. It will be time to worry "when Uber finally decides to come public." said Convergex's Colas. "That will be the AOL-Time Warner of this cycle."

The Nasdaq exchange is seen in New York City.

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The Nasdaq composite, which lost its cachet as a benchmark after the dot-com bubble burst in 2000, is back on top, rising to a record high Friday after tripling the return of the S&P 500 this year.

The Nasdaq is riding two forces which it is more leveraged to than the S&P 500: its old friend digital innovation and, a booming biotech industry.

Video streaming company Netflix, Internet commerce giant Amazon.com and gaming app maker Electronic Arts are the three biggest gainers in the Nasdaq 100 this year. Netflix shares have doubled and Electronic Arts and Amazon are both up more than 50 percent.

After earnings blew past estimates Thursday night, Google joined in, pushing the Nasdaq composite to an intraday record Friday.

And then there's the biotech stocks, which overcame a valuation warning last year from Fed Chair Janet Yellen and a 12 percent pullback this year to hit another record this week. The iShares Nasdaq Biotechnology ETF is up 30 percent in 2015.