The stock market's downturn hit a new milestone on Monday, when the Nasdaq Composite (^IXIC 0.65%) closed down more than 3.6%. The daily drop completed a decline of more than 20% from the tech-heavy index's all-time highs in November, and while Wall Street seemed somewhat calmer Tuesday morning about everything going on in the world right now, a roughly 0.5% rise in Nasdaq futures as of 7:30 a.m. ET wasn't exactly the biggest sign of long-term confidence in the stock market.
Ordinarily, investors might expect that the emergence of an official bear market would be noteworthy. Moves of 20% or more for major indexes have been few and far between during the 21st century, with the plunge at the beginning of the COVID-19 pandemic, the financial crisis of 2008 and 2009, and the tech bust from 2000 to 2002 standing out as the major downward moves for the most followed stock market benchmarks. But this time seems different, and a lot of the reason has to do with the truly punishing downward moves we've seen in individual stocks.
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Less visible from the top down
Indeed, the most surprising thing about the Nasdaq bear market is how well the index has held up in comparison to most of its stocks. A look at the Nasdaq's top component stocks shows exactly why the Nasdaq hasn't fallen into a bear market even sooner.
Apple and Microsoft together make up between 20% and 25% of the total weight of the Nasdaq-100 Index, and the two tech giants haven't seen very big declines. Apple is down just 12% from its all-time record set in early January, while Microsoft's decline is less than 19% from its December highs.
The same is true for several other top-10 Nasdaq stocks. Alphabet is down just 16%, and even the somewhat harder-hit Amazon has fallen just over 25% from its recent highs.
Only recently have some cracks in the top echelon of the Nasdaq started to appear. Semiconductor giant Nvidia has posted a 35% drop, while both social media pioneer Meta Platforms and streaming video innovator Netflix have suffered declines of around 50%.
Obvious from the bottom up
For many investors in smaller stocks, however, the pain has been obvious for a while. The clearest example is in the stocks that saw such huge gains during the pandemic. Peloton Interactive and its connected fitness business have suffered as fitness fans return to gyms. Troubles with business execution have sent Peloton stock down more than 85% since early 2021.
Zoom Video Communications is another example, with massive growth sending its stock soaring during 2020. In the past year and half, though, Zoom has failed to keep up its fundamental business momentum. The stock is down more than 80% from its highs as a result.
Even among companies that are still producing impressive growth figures, the rise in their share prices was so great that the stocks have fallen back to earth. You can find plenty of well-known names down 50% to 75% from their highs.
Don't anchor
Many investors hope that the stocks they own will go back to their all-time highs. But recovering from a 75% decline requires a 300% upward move. Even in best-case scenarios, that's unlikely to happen quickly. It could take years of successful rebuilding to get back on track. Many companies won't succeed.
The key, though, is that at such low prices, many stocks don't have to return to their all-time highs quickly in order to generate strong returns. If you can put those record levels out of your mind, it'll be easier for you to realize the extent of the bargains in the market right now. It doesn't mean the Nasdaq won't fall further, but it does mean you can feel more comfortable with the businesses you invest in and their prospects for future gains in the long run.
