The momentum of the Nasdaq-100 index surged 53% the previous year, marking the most remarkable performance witnessed in the current century. Meanwhile, the broader Nasdaq Composite Index also outperformed, delivering a gain of 43%, surpassing other major market indexes.
Will Nasdaq stocks see a similar surge in 2024? The answer may lie in history’s trends and data.
Image source: Getty Images.
Evaluating the “Year After” Phenomenon
Firstly, let’s delve into the performance of the Nasdaq the year following significant moves. The interpretation of ‘big’ could potentially impact the analysis. If we define ‘big’ as a gain of 40% or more, the historical records are relatively sparse. Since the inception of the Nasdaq Composite Index in early 1971, the index finished above 40% merely five times prior to the previous year’s upsurge.
Data source: Macrotrends. Chart by author.
The Nasdaq ascended in four out of the five instances the year after a gain of 40% or more. Nonetheless, in each of these cases, the subsequent year’s return notably lagged compared to the prior year.
What if the benchmark for a significant move is revised to a Nasdaq surge of 20% or more? This situation arises more frequently, occurring 18 times before 2023.
Data source: Macrotrends. Chart by author.
Although this chart appears more convoluted, it depicts a scenario where the Nasdaq experienced a decline in only four of the 18 years following a gain of 20% or more. The data also illustrates that barring four occasions, the index’s returns in the year following a 20% surge or more were lower than the preceding year.
Unpacking the Presidential Influence
Many have observed that the S&P 500 usually observes an upturn during U.S. presidential election years. Does the Nasdaq adhere to a similar “presidential pattern”? Absolutely.
Data source: Macrotrends. Chart by author.
In the 14 U.S. presidential elections since the inception of the Nasdaq Composite Index, the index delivered positive returns in 11 instances, with nine of those years witnessing double-digit percentage gains. Conversely, the Nasdaq only experienced declines in three of the years coinciding with a U.S. presidential election.
It should be noted that two of the declines were notably steep. However, these instances were exceptional, with the sizable Nasdaq loss in 2000 transpiring as one of the major stock market bubbles was beginning to burst, and the more substantial plunge in 2008 unfolding in the aftermath of the financial crisis that dovetailed with the Great Recession.
Contemplating the Repetition of History
If history is an effective barometer, Nasdaq stocks are poised for a favorable trajectory in 2024. However, it is customary at this juncture to underscore that history does not invariably replicate itself. Despite this, it’s plausible to place faith in history’s recurrence—particularly for individuals with a long-term outlook. The Nasdaq is likely to maintain a pattern of generating positive returns in more instances than declines. A bet on this trend could result in enduring profitability.
Nevertheless, it’s uncertain whether the stocks which witnessed substantial growth the preceding year will outperform in 2024 or even over the subsequent decade. Notwithstanding, it is probable that stalwarts such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Nvidia will sustain their winning streak over the coming decade and beyond.
Investors have the option to invest in these Nasdaq stocks with promising growth prospects. Alternatively, they could opt for an exchange-traded fund (ETF) that tracks the Nasdaq, such as the Fidelity Nasdaq Composite Index ETF (NASDAQ: ONEQ). Those inclined towards focusing solely on the largest Nasdaq stocks could consider investing in the Invesco QQQ ETF (NASDAQ: QQQ), which encompasses all the stocks in the Nasdaq-100.
Acquiring shares in these ETFs may lay the groundwork for success. Although this success may or may not materialize in 2024, the prospects of long-term gains appear favorable.
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