The Nasdaq-100 index skyrocketed 53% last year, marking the best performance witnessed this century. On a broader front, the Nasdaq Composite Index achieved a commendable gain of 43%, surpassing its counterparts in the major market indexes.
So, will Nasdaq stocks manage to soar again in 2024? Here’s an intriguing analysis of historical trends that could shed light on the matter.
Image source:Getty Images.
Examining the “Year After” Effect
Let’s first delve into how the Nasdaq has fared in the year following a substantial move. The definition of what constitutes a “substantial” move is crucial in this context.
If we define a “substantial” move as a gain of 40% or more, the historical backdrop showcases limited occurrences. Since the inception of the Nasdaq Composite Index in early 1971, the index concluded above the 40% mark only five times before the previous year’s astounding performance.
Data source: Macrotrends. Chart by author.
The Nasdaq surged in four out of five instances in the year following a gain of 40% or more. Nonetheless, in each of these cases, the subsequent year’s return was notably smaller than the preceding year.
Shifting the yardstick for a substantial move to one where the Nasdaq surged 20% or more unfolds a much more prevalent scenario. This occurrence transpired 18 times before 2023.
Data source: Macrotrends. Chart by author.
This chart presents a more intricate picture when compared to the earlier one. However, it reveals that the Nasdaq experienced a decline in only four out of the 18 years following a gain of 20% or more. The data also unveils that with the exception of four cases, when the index ascended in the year after a gain of 20% or more, its return was lower than the previous year.
Exploring the Presidential Pattern
Observers highlight that the S&P 500 typically ascends during U.S. presidential election years. Does the Nasdaq adhere to this “presidential pattern”? Indeed.
Data source: Macrotrends. Chart by author.
Since the inception of the Nasdaq Composite Index, there have been 14 U.S. presidential elections. The index yielded positive returns in 11 of these years, with nine of them witnessing double-digit percentage gains. The Nasdaq saw a decline in only three years amidst U.S. presidential elections.
It’s important to note that two of these declines were particularly steep but they were also anomalous. The substantial Nasdaq loss in 2000 occurred as one of the most colossal stock market bubbles in history began to burst. The even greater plummet in 2008 was a consequence of the financial crisis that coincided with the Great Recession.
Should Investors Anticipate a Repeat of History?
If history is any indication, Nasdaq stocks are poised for a strong performance in 2024. However, it’s at this juncture where conventional wisdom mandates that history doesn’t invariably repeat itself. Encapsulated in this adage is the verity that there’s no guarantee of Nasdaq stocks soaring in 2024 simply because the index skyrocketed in 2023. Both statements hold true.
Despite this, I contend that it’s plausible to expect history to reiterate itself – especially with a long-term mindset. What I mean by that is the likelihood of the Nasdaq consistently delivering positive returns over a broad timeframe. If one were to back this trend, gains would likely materialize over the long haul.
That said, the individual stocks that experienced significant surges last year may not be the frontrunners in 2024. They may not even be the top-performers over the coming decade. Nevertheless, I have a hunch that Nasdaq stocks such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Nvidia will sustain their winning streak over the next decade and beyond.
Investing in these or other Nasdaq stocks with robust growth potential could be beneficial. Alternatively, opting for an exchange-traded fund (ETF) that mirrors the Nasdaq such as the Fidelity Nasdaq Composite Index ETF (NASDAQ: ONEQ) or the Invesco QQQ ETF (NASDAQ: QQQ), which exclusively holds all the stocks in the Nasdaq-100, could prove to be a wise move.
I believe that investing in either of these ETFs could position you for success. The broader success may or may not manifest in 2024, yet the odds of long-term profitability seem favorable if you adopt a buy-and-hold strategy.
Note: The stocks mentioned in this article are for illustrative purposes only and are not to be considered as stock recommendations.
*Disclaimer: The author of this article has no financial interest in the stocks or ETFs mentioned in this analysis.