Nasdaq nears all-time highs as exuberance yields to reason

As the technology-heavy Nasdaq Composite Index closes in on the all-time high it reached in March 2000, investors are facing a market that barely resembles the go-go era of 15 years ago.

Valuations, as measured by what investors are willing to pay for the last 12 months of earnings, are an eighth of what they were at the peak of the dot com bubble, when the Nasdaq hit an intraday record of 5,132 before falling more than 63 percent in 12 months.

Dividend investors, too, now routinely hold large positions in technology companies such as Microsoft, Cisco, and Oracle, a decision unthinkable in the growth-focused days of 2000 but now common thanks to mountains of corporate cash and changes in tax policy that have been favorable to dividends.

Should the Nasdaq set a new record soon, as many expect - the index remains about 4 percent below its highest point after gaining nearly 15 percent over the last 12 months - its catalyst won't be irrational exuberance, fund managers and analysts say.

Instead, three key factors underpin the Nasdaq's 125 percent rise over the last five years: the Federal Reserve's ongoing policy of near-zero interest rates that has made equities more attractive than bonds; the maturation of technology companies; and the rise of Apple Inc.

A company that didn't appear among the largest 20 companies by market value in the index 15 years ago and now represents more than 10 percent of its weight.