During the late 1990s, the values of internet-based stocks rose sharply. As a result, the technology-dominated NASDAQ Composite Index (NASDAQINDEX: ^IXIC) surged from 1,000 points in 1995 to more than 5,000 in 2000. But in early 2001, the dot-com stock bubble started to burst. The NASDAQ peaked at 5,048.62 points on March 10. The index would go on to plummet by 76.81% until it reached a low of 1,139.90 points on Oct. 4, 2002.
The primary cause of this crash was overvalued internet stocks. Many investors speculated that dot-com companies, even those without revenues, would one day become extremely profitable. As a result, they poured money into the sector, driving up the valuation of every company with “dot com” in its name. This stock market bubble burst when the Federal Reserve tightened its monetary policy, constraining the flow of capital. The NASDAQ did not again rise to its 2001 peak until almost 15 years later.