The Nasdaq-100 index skyrocketed 53% last year, the best performance this century. The broader Nasdaq Composite Index delivered a gain of 43%. That return handily beat the other major market indexes.
Will Nasdaq stocks soar again in 2024? Here's what history shows.
Image source:Getty Images.
The "year after" effect
Let's first look at how the Nasdaq has performed the year after a big move. The definition we use for "big" could make a difference, though.
If by "big" we mean a gain of 40% or more, there's a limited history. The Nasdaq Composite Index was created in early 1971. Since then, the index finished above 40% only five times before last year.
Data source: Macrotrends. Chart by author.
The Nasdaq jumped in four out of five times during the year after a gain of 40% or more. However, in each of those cases, the subsequent year's return was much smaller than the previous year.
What if we change our definition of a big move to one where the Nasdaq vaulted 20% or more higher? That's a much more frequent scenario. It's happened 18 times before 2023.
Data source: Macrotrends. Chart by author.
This chart is a lot busier than the first one. However, it shows that the Nasdaq declined in only four of the 18 years following a gain of 20% or more. The data also reveals that in all but four of the cases when the index rose in the year after a gain of 20% or more, its return was lower than the previous year.
The presidential pattern
Some have noticed that the S&P 500 typically rises during U.S. presidential election years. Does the Nasdaq follow this same "presidential pattern"? Yep.
Data source: Macrotrends. Chart by author.
There have been 14 U.S. presidential elections since the Nasdaq Composite Index was created. The index delivered positive returns during 11 of those years, nine of which were double-digit percentage gains. The Nasdaq declined in only three years when there was a U.S. presidential election.
It should be noted that two of those declines were especially steep. However, they were also unusual cases. The big Nasdaq loss in 2000 came as one of the biggest stock market bubbles in history was beginning to burst. The even greater plunge in 2008 came on the heels of the financial crisis that dovetailed with the Great Recession.
Should you bet on history repeating itself?
If history is any guide, Nasdaq stocks should perform well in 2024. But this is the point where I'm supposed to say that history doesn't always repeat itself. I'm supposed to tell you that there's no guarantee that Nasdaq stocks will soar in 2024 just because the index skyrocketed in 2023. To be sure, both statements are correct.
However, I think that you can bet on history repeating itself -- if you have a long-term mindset. What I mean by that is the Nasdaq is likely to continue delivering positive returns in more years than it declines. If you bet on that trend, you'll probably make money over the long run.
That said, the individual stocks that jumped the most last year might not be the biggest winners in 2024. They might not even be best performers over the next decade. I suspect, though, that Nasdaq stocks such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Nvidia will keep up their winning ways over the next decade and beyond.
You could buy these or other Nasdaq stocks with strong growth prospects. Or you could simply invest in an exchange-traded fund (ETF) that tracks the Nasdaq such as the Fidelity Nasdaq Composite Index ETF (ONEQ 2.11%). If you want to focus only on the biggest Nasdaq stocks, the Invesco QQQ ETF (QQQ 1.54%) could be right up your alley. It owns all of the stocks in the Nasdaq-100.
I think that buying either of these ETFs could set up up for success. That success may or may not come in 2024, but the odds are good that you'll be successful if you buy and hold for the long term.
