Dot-Com Crash 2000–2002

The Nasdaq Composite peaked in March 2000 after a multi-year run-up driven by speculation in internet and telecom stocks, many of which traded at extreme multiples or had no earnings at all. From peak to trough in October 2002 the Nasdaq fell approximately 78%, the S&P 500 fell roughly 49%, and a long list of high-profile dot-com names (Pets.com, Webvan, eToys) went to zero. The downturn was slow-motion: it played out over more than two and a half years, punctuated by sharp bear-market rallies. The broader US economy entered a mild recession in 2001, compounded by 9/11 and accounting scandals (Enron, WorldCom) that further damaged investor confidence.

• Value stocks — particularly small-cap value and dividend payers that had been left behind during the bubble — held up meaningfully better than growth and tech.
• REITs and other income-producing real assets posted positive total returns over the same window in which tech collapsed.
• Intermediate and long-dated US Treasuries rallied as the Fed cut rates from 6.5% to 1.0% over the cycle.
• Cash earned a meaningful nominal yield in 2000-2001 before the cuts took it lower.

• Concentrated tech and telecom exposure — including market-cap-weighted indices, which were heavily tilted to the bubble sectors at the peak.
• Aggressive growth strategies and IPOs of unprofitable companies.
• Margin debt expanded sharply into the peak and contracted forcibly on the way down.
• Buy-and-hold of individual story stocks — a substantial share of bubble-era names never recovered their highs.

• A market-cap-weighted index reflects the bubble. When one sector becomes a large fraction of the index, owning "the market" effectively means owning that sector.
• Valuation matters over multi-year horizons even if it does not over multi-month ones. The dot-com peak was visible in P/E, P/S and price-to-cash-flow metrics that traded several standard deviations above their historical norms.
• Recoveries are uneven by sector. The S&P 500 took roughly seven years to regain its 2000 high; the Nasdaq Composite took roughly fifteen.