The dot-com bubble: what it was and when it burst

Education only, not financial advice. Figures come from official sources, each with its date; past market moves do not predict future ones. How we work

The dot-com bubble was a run-up in internet and technology stocks in the late 1990s that burst in 2000. The Nasdaq Composite, the index most tied to tech companies, closed at a record 5,048.62 on March 10, 2000 and then fell 77.9% to 1,114.11 on October 9, 2002.

That is not far from the 89% fall of the Dow after the 1929 crash, and the recovery was slow: the Nasdaq needed until April 23, 2015 to close above its 2000 peak. This page sets out the dates, the numbers and the policy story, using official data.

What was the dot-com bubble?

In the second half of the 1990s, investors poured money into companies built around the internet, many of them young firms that had only recently gone public. The Nasdaq, where most of these shares were listed, shows the scale. Daily data from FRED put the index at 1,052.13 at the end of 1995 and 2,192.69 at the end of 1998. In 1999 alone it rose 85.6%, to 4,069.31. It first closed above 5,000 on March 9, 2000, and set its peak the next day.

Source: FRED, series NASDAQCOM (Nasdaq OMX Group), computed by the editors.

What did Greenspan mean by "irrational exuberance"?

On December 5, 1996, Federal Reserve Chairman Alan Greenspan gave a lecture at the American Enterprise Institute in Washington. In a long speech about central banking, he asked a question that became famous:

"But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" (Alan Greenspan, Federal Reserve Board, December 5, 1996)

He posed it as a question for policymakers, not as a forecast. The Nasdaq closed at 1,300.12 that day. It went on to rise another 288% before peaking in March 2000, which shows how hard it is to call the top of a market even when the people in charge are openly asking about it.

When did the dot-com bubble burst?

The peak close on March 10, 2000 is the usual date. The fall was not a single crash day like Black Monday 1987. It was a grinding bear market that lasted two and a half years, with sharp rallies along the way. The Nasdaq ended 2000 at 2,470.52, down 39.3% for the year, and kept falling through 2001 and 2002.

Monetary policy formed part of the background. The Federal Reserve raised its federal funds target from 4.75% at the start of 1999 to 6.5% on May 16, 2000, two months after the peak. As the economy weakened it reversed course, starting with a cut on January 3, 2001, and brought the target down to 1.75% by December 11, 2001 and 1% by June 25, 2003.

Did the dot-com crash cause a recession?

A mild one followed. On November 26, 2001, the National Bureau of Economic Research announced that a business cycle peak had occurred in March 2001, ending an expansion that began in March 1991 and lasted exactly 10 years, the longest in its chronology at the time. In July 2003 it set the trough in November 2001. The recession lasted eight months, which the committee called slightly less than average for recessions since World War II.

The committee also noted that the September 11 attacks clearly deepened the contraction and may have been an important factor in turning the episode into a recession. So the stock market collapse was one cause among several. Our page what is a recession explains how the NBER makes these calls.

What did regulators do after the bubble?

One problem the bust exposed was conflicted stock research. On April 28, 2003, the Securities and Exchange Commission announced settlements with ten of the largest investment firms, with payments of about $1.4 billion in total: $487.5 million in penalties, $387.5 million in disgorgement, $432.5 million to fund independent research and $80 million for investor education. The SEC said that from about mid-1999 through mid-2001 or later, the firms let investment banking exert inappropriate influence over their research analysts. Some firms were charged with issuing fraudulent research reports, and two with "spinning," handing out hot IPO shares to win business.

The settlement required firms to separate research from investment banking and to stop paying analysts based on banking deals.

How can you compare an AI boom with the dot-com bubble?

Comparisons between today's artificial intelligence stocks and the dot-com era are common. We do not predict whether any market is a bubble or when it might turn. What a careful comparison can do is line up the same facts for both periods:

• Price run-up. How much an index rose over a set period. The Nasdaq gained 85.6% in 1999 alone; compare like with like, using the same index and the same span.
• Profits behind the prices. Whether earnings and revenues are growing in line with share prices. Company filings on the SEC's EDGAR database show whether today's leaders earn money and how fast it grows.
• Concentration. How much of an index rests on a handful of companies, which affects how a fall in a few names spreads.
• Policy and credit. In 1999-2000 the Fed was raising rates. The rate path today, available on FRED, is a different starting point.

Those measures describe risk; they do not time it. As Greenspan's 1996 question showed, prices kept climbing for more than three years after he raised it. If you are wondering what this means for your own savings, the answer depends on your situation. The SEC's Investor.gov site is a neutral place to start.

What does the dot-com bubble show about crashes?

Two lessons stand out in the data. Recovery after a bubble can take a very long time: fifteen years for the Nasdaq, while the S&P 500 was back above its old peak on August 18, 2020, five months after the low of the 2020 crash. And a deep market fall does not always bring a deep recession: the 2001 recession lasted eight months, slightly less than the postwar average. For the full list of major falls, see our history of stock market crashes.

Questions readers ask