Is a Nasdaq Bull Market Coming In 2023? Here's What History Says

The Nasdaq Composite dropped into a bear market in late 2021, and the tech-heavy index is still 27% off its high. Economic uncertainty brought on by high inflation and rising interest rates played a major role in that decline.

The annual inflation rate hit 8% last year, double the five-decade average, prompting the Federal Reserve to raise its benchmark rate at its fastest pace since the early 1980s. But some economists are worried that central bank policymakers are acting too aggressively. Overtightening could tip the economy into a recession.

Indeed, despite recent turmoil in the banking industry, the latest projections from the Federal Open Market Committee indicate that most central bank officials expect one more quarter-point rate hike (and no rate cuts) in 2023. Analysts at JPMorgan Chase believe that will contribute to weak economic growth, and they estimate the odds of a U.S. recession at greater than 50% this year.

Does that mean the bear market will persist through 2023? Or could the Nasdaq find its way back to bull market territory? Here's what investors should know.

Historical data on Nasdaq bear markets

The Nasdaq Composite was introduced in 1971, and the index has suffered 18 bear markets since its inception. The chart below provides details on each drawdown, though it excludes the current bear market because it has yet to end.

Data source: Bespoke Investment Group.

The Nasdaq has declined 36% during the average bear market, and it has bottomed after an average of 200 days. For context, the current  bear market began on Nov. 19, 2021 -- 494 days ago at the time this article was written -- making it one of the longest bear markets on record. Additionally, the Nasdaq last bottomed on Dec. 28, 2022. The index was down 36.4% at the time.

Given that context, the Nasdaq could indeed find its way back to bull market territory this year. After all, the current bear market has already lasted twice as long as the average bear market, and its peak loss is in line with the average decline. But historical data has limits. As shown in the chart, past bear markets have varied widely in duration and severity, and past performance is never a guarantee of future returns.

Why now is a good time to buy stocks

It may be tempting to avoid stocks until the economy improves, but investors who attempt to time the market are setting themselves up for failure. Stocks are generally forward-looking in nature. For instance, the Nasdaq began its decline before inflation peaked and before the Fed began raising interest rates. By the same logic, the index will likely begin its rebound before economic activity hits a bottom.

That means investors sitting on the sidelines today will likely see lower returns than investors who treat the current situation as a buying opportunity. In fact, JPMorgan Chase Global Investment Strategist Elyse Ausenbaugh recently noted that today offers "one of the best entry points for a diversified portfolio in over 10 years."

Building on that idea, the Nasdaq has never failed to recoup its losses in the past. Every bear market has inevitably ended in a new bull market, and there is no reason to think that pattern will change. Investors looking to capitalize on the coming bull market should consider buying the Fidelity Nasdaq Composite ETF (ONEQ 2.05%).

A sensible option for risk-tolerant growth investors

The Fidelity Nasdaq Composite ETF is an index fund that tracks the Nasdaq Composite. It includes more than 1,000 large-cap growth stocks that span all 11 market sectors, though it is heavily weighted toward information technology, consumer discretionary, and communication services. Its top five holdings include Apple, Microsoft, Alphabet, Amazon, and Tesla, and those stocks account for 39% of its weighted exposure. That concentration means the Fidelity ETF is prone to volatility, but it has also led to astonishing returns over long periods of time.

The Fidelity ETF produced a total return of 492% over the last 15 years, or 12.5% on an annual basis. At that pace, $200 invested weekly would be worth $187,000 in a decade, $794,000 in two decades, and $2.8 million in three decades.

Also noteworthy: The Fidelity ETF bears a below-average expense ratio of 0.21%, meaning annual fees will total $21 on a $10,000 portfolio. In short, the Fidelity ETF is an inexpensive way for risk-tolerant investors to diversify across hundreds of growth stocks, and buying a few shares is a great way to prepare for the next Nasdaq bull market.