The Nasdaq-100 is having an incredible year. It has delivered a gain of 51.9% so far, marking a sharp reversal from 2022 when it plunged into bear territory.
But a gain of more than 50% in a single year is incredibly rare. In fact, it has only happened four times since the Nasdaq-100 was established in 1986:
- In 1991, the index rose 64.9%
- In 1998, it jumped 85.3%
- In 1999, it soared 101.9%
- In 2009, it gained 53.5%
The back-to-back monster gains in 1998 and 1999 preceded the dotcom tech crash, which led to three straight years of stock market declines from 2000 to 2002. That era was littered with internet companies that had very little financial success supporting their sky-high valuations, which is very different from the environment we are in today.
I would argue 2023 is more similar to 1991 and 2009; on all three occasions, the market logged a powerful gain after suffering a steep loss the year before. Assuming the Nasdaq-100 holds its gains for the rest of the year, historical data suggests an incredible chapter might be ahead for the stock market.
Image source: Getty Images.
Economic trends are setting the stage for more stock market gains
The Nasdaq-100 fell 33% in 2022, mainly due to macroeconomic headwinds. Inflation was soaring that year and, to fight it the U.S. Federal Reserve embarked on an incredibly aggressive campaign to hike interest rates. Within the span of 18 months, the Federal Funds Rate soared from 0.25% to 5.50%.
Consumers faced a double-whammy of higher prices at the mall, the grocery store, and the gas station, combined with surging mortgage payments. Those pressures forced investors to temper their growth forecasts for the stock market, which had a particularly negative impact on the technology sector because it tends to trade at a premium valuation.
Slowing down consumer spending was the Fed's goal, and it has managed to cool inflation dramatically so far. In fact, experts are forecasting six interest rate cuts in 2024 because there has been so much progress. That's part of the reason the stock market has rebounded with a vengeance this year.
The Nasdaq-100 might be setting up for a multi-year winning streak
Let's circle back to the data from 1991 and 2009. The Nasdaq-100 logged a gain of more than 50% in each of those years, and on both occasions, it sparked the beginning of a nine-year winning streak!
That's right, the periods from 1991 to 1999 and 2009 to 2017 are tied for the longest winning streak in the history of the Nasdaq-100. But that isn't the only indicator pointing to several years' worth of gains from here.
Years when the Nasdaq-100 bounced back from a singular annual loss (like it has in 2023) marked the beginning of a bull market that has lasted more than six years on average.
This tech trend could fuel the next bull market
The data I've shared above indicates a likelihood of more stock market gains. But historical data alone isn't enough to confirm the market's next move -- that would be too easy. Investors should always expect the unexpected.
With that said, one clear trend is emerging in the technology sector, and investors should consider buying a slice of it no matter what the broader market does.
That trend is artificial intelligence (AI). Chatbots like OpenAI's ChatGPT captured investors' attention this year with their ability to rapidly craft text, images, videos, and even computer code. Companies are already monetizing the technology, and Cathie Wood's Ark Investment Management predicts it could add a whopping $200 trillion to the global economy by 2030.
Nvidia (NVDA +1.67%) was one of the best AI plays in 2023; its data center chips are critical to developing, training, and deploying AI models, and it will likely carry its momentum into the years ahead. Microsoft (MSFT +0.60%) is another great AI pick going forward. It owns a sizable stake in ChatGPT developer OpenAI, and it has integrated the chatbot across its product portfolio to create new revenue streams.
Some of the world's most prominent investors are scooping up AI stocks, and a multi-year bull market could be the perfect breeding ground for powerful gains.
