The Nasdaq 100 is one of the most popular indexes to track the market's performance, and you can purchase the Invesco QQQ ETF (QQQ 0.34%) to invest in it. It's often denoted as the "tech-heavy Nasdaq" when the media discusses it, thanks to its heavy concentration in tech companies. With the index up more than 19% this year, investors might wonder if it's time to look elsewhere after such a strong start.
While it's true that the index has started the year off tremendously, it doesn't paint the complete picture. So let's look at this index and see what the rest of 2023 might have in store.
The strong 2023 performance was caused by a weak 2022
Looking at the top 10 components of an index is a great way to see what stocks drive performance.
| Company | Weighting | YTD Performance | 2022 Performance |
|---|---|---|---|
| Microsoft | 12.8% | 20.7% | (28.7%) |
| Apple | 12.4% | 24.7% | (26.8%) |
| Amazon | 6.2% | 21.6% | (49.6%) |
| Nvidia | 5.1% | 88.7% | (50.3%) |
| Alphabet (Class A Shares) | 3.9% | 20.6% | (39.1%) |
| Alphabet (Class C Shares) | 3.7% | 20.5% | (38.7%) |
| Meta Platforms | 3.7% | 78.5% | (64.2%) |
| Tesla | 3.5% | 49.8% | (65%) |
| PepsiCo | 2% | 1.4% | 4% |
Data sources: Slickcharts and YCharts. YTD = Year to date. Note: Weighting and performance as of April 10.
As you can see, the Nasdaq 100 is top-heavy, with those 10 big stocks comprising 53.3% of the index. This means the performance of this cohort will significantly drive the index's overall performance. With nearly every company (except for Pepsi) up more than 20% in 2023, it's no wonder the index as a whole is doing quite well.
Additionally, looking at 2022's performance helps put the rebound in 2023 in context. With many of the top 10 components down by 40% or more last year, a strong recovery in 2023 is only a fraction of what it would take to regain the levels when most shares peaked in 2021.
With that in mind, could the Nasdaq 100 move even higher throughout the rest of 2023?
The direction of the index could change in just a few weeks
The market tends to look forward when determining what to do with a stock. For example, in 2022, everyone was worried about a recession, so stock prices fell in anticipation of that event. However, the recession never came (the two straight quarters of U.S. gross domestic product decline last year was never declared an official recession), and the economy has powered on, even if at a slower pace.
Still, with the Federal Reserve continuing to raise interest rates to quell inflation, a recession could ensue, but that's not what stock prices indicate.
With many of these stocks being sold off last year in anticipation of the recession, they looked extremely undervalued when it didn't come. That's what's driving the current performance. Plus, many of these companies predicted last year the consumer would recover by late 2023 or early 2024, so the markets are moving ahead of that shift.
If these companies issue weak forecasts in their first-quarter reports (investors will start hearing from them in late April) for the rest of the year, don't be surprised if the index reverses course and moves lower. However, if they tell investors that the end of 2023 remains the recovery target, the Nasdaq 100 will continue increasing.
Regardless of what happens, that's a small window to look at an index. Over the long term, companies such as Amazon, Alphabet, and Tesla have massive long-term tailwinds blowing in their favor and will likely perform strongly over the next decade with their tech focus.
This makes the Nasdaq 100 one of the best indexes to park your investment dollars in. While the index's performance over the next year could be predicted with a coin flip, I'm confident that the long-term trend of the Nasdaq 100 is up, and investors shouldn't hesitate to purchase some QQQ shares to track it.
