The Nasdaq-100 index surged by a remarkable 53% the previous year, marking its strongest performance in this century. Meanwhile, the broader Nasdaq Composite Index delivered a substantial gain of 43%, outpacing other major market indexes. The pressing question on everyone’s mind is whether Nasdaq stocks will soar again in 2024. Let’s dive into history to find out.
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Examining the “Year After” Effect
Firstly, let’s investigate how the Nasdaq has fared in the year following a substantial move. The definition of “substantial” could significantly impact the outcomes.
For instance, considering a “substantial” move as a gain of 40% or more, the Nasdaq Composite Index achieved this feat only five times since its inception in early 1971, before last year’s stellar performance.
Data source: Macrotrends. Chart by author.
Of those five instances, the Nasdaq surged in four of the following years, albeit with subsequently diminishing returns each time.
Expanding the definition to a gain of 20% or more, a more prevalent scenario with 18 occurrences prior to 2023, the Nasdaq declined in only four of the 18 years following such a gain. Furthermore, the data suggests that in all but four instances, a year following a gain of 20% or more registered a lower return than the preceding year.
Data source: Macrotrends. Chart by author.
The Presidential Pattern
Observations have revealed the typical rise of the S&P 500 during U.S. presidential election years. Does the Nasdaq echo this “presidential pattern”? Certainly.
Data source: Macrotrends. Chart by author.
Over the 14 U.S. presidential elections since the inception of the Nasdaq Composite Index, positive returns were recorded in 11 of those years, with nine of them witnessing double-digit percentage gains. Additionally, the Nasdaq suffered declines in only three years during U.S. presidential elections.
It’s essential to note that two of these downturns were notably severe. The substantial Nasdaq loss in 2000 coincided with the inception of one of the most significant stock market bubbles in history. Similarly, the deeper plunge in 2008 transpired alongside the financial crisis that intersected with the Great Recession.
Considering the Odds of History Repeating Itself
While historical trends suggest that Nasdaq stocks are poised for a strong showing in 2024, it is customary to acknowledge that history does not always replicate itself. Nevertheless, with a long-term perspective, betting on the continued positive returns from the Nasdaq seems rational.
However, it’s worth noting that the best-performing stocks in 2023 may not retain their lead in 2024 or even over the subsequent decade. Notwithstanding, stocks such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Nvidia from the Nasdaq are anticipated to perpetuate their trajectory of success into the subsequent decade and beyond.
Investors may consider investing in these or other Nasdaq stocks that exhibit strong growth potential. Alternatively, they could opt for an exchange-traded fund (ETF) tracking the Nasdaq such as the Fidelity Nasdaq Composite Index ETF (NASDAQ: ONEQ). A focus solely on the largest Nasdaq stocks could lead investors to the Invesco QQQ ETF (NASDAQ: QQQ), encompassing all the stocks in the Nasdaq-100.
While success may not be immediate in 2024, these ETFs could lay the foundation for long-term prosperity, as history intimates.
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