The Nasdaq Composite (^IXIC +1.22%) advanced 28% last year as investors piled into technology stocks amid enthusiasm about artificial intelligence. The index continued to climb higher into February, but then reversed course as recession fears resurfaced and the Trump administration began imposing tariffs.
The Nasdaq hit correction territory on March 6, meaning it had fallen more than 10% from its most recent bull-market high. And the losses continued to mount in the subsequent days. Most notably, the index tumbled 4% on March 10, its worst single-day performance since 2022.
However, there is a silver lining. While the Nasdaq is now 12% below its record high, the technology-focused index has usually recovered quickly after entering correction territory. Here's what investors should know.
NASDAQINDEX: ^IXIC
Key Data Points
History says the Nasdaq Composite could move sharply higher in the next 12 months
The Nasdaq Composite tracks more than 3,000 companies listed on the Nasdaq Exchange. The index is heavily weighted toward the technology and consumer discretionary sectors, both of which have performed poorly in 2025.
As mentioned, the Nasdaq on March 6 closed over 10% below its recent bull-market high of 20,174. That means the index has officially entered a market correction, something it has done a dozen other times since 2010. The chart below lists each of those events, and it shows how the Nasdaq performed in the next 12 months.
|
Nasdaq First Closes in Correction Territory |
12-Month Return |
|---|---|
|
May 7, 2010 |
25% |
|
Aug. 4, 2011 |
16% |
|
May 18, 2012 |
26% |
|
Nov. 14, 2012 |
40% |
|
Aug. 24, 2015 |
15% |
|
Oct. 24, 2018 |
15% |
|
June 3, 2019 |
32% |
|
Feb. 27, 2020 |
54% |
|
Sept. 8, 2020 |
41% |
|
March 8, 2021 |
2% |
|
Jan. 19, 2022 |
(24%) |
|
Aug. 2, 2024* |
6% |
|
Average |
21% |
Data source: YCharts. The asterisk indicates that a full year has not yet elapsed since the Nasdaq closed in correction territory on August 2, 2024.
As shown above, the Nasdaq after its first close in correction territory has returned an average of 21% in the next 12 months. By comparison, the index gained 15% annually over the entire period. That means the Nasdaq has historically produced above average returns following its first close in correction territory.
Past performance is never a guarantee of future results, but we can use that information to make an educated guess about what happens next. The index closed at 18,069 on March 6, and it will advance 21% to 21,863 in the next year if its performance aligns with the average. That implies 23% upside from its current level of 17,754.
Image source: Getty Images.
The U.S. stock market may continue to struggle until uncertainty surrounding tariffs dissipates
U.S. trade policy has changed radically since President Trump took office two months ago. His administration has imposed tariffs on goods from China, Canada, and Mexico, as well as steel and aluminum imports. Trump also plans to implement reciprocal tariffs on April 2, meaning the U.S. will tax imports at the same rate as other countries tax U.S. exports.
The nonpartisan Tax Foundation estimates tariffs imposed to date could reduce U.S. GDP by 0.4 percentage points. Additionally, if the Trump administration forges ahead with tariffs on European imports, doing so would reduce U.S. GDP by another 0.3 percentage points.
Importantly, those figures do not account for retaliatory actions taken by other countries, nor do they account for reciprocal tariffs expected to take effect next month. So, the stock market will likely remain volatile until uncertainty surrounding U.S. trade policy dissipates.
However, investors can take comfort in the historical resilience of the U.S. market. The Nasdaq has recovered from every past correction and bear market. That same applies to the S&P 500 (^GSPC +1.01%) and Dow Jones Industrial Average (^DJI +0.83%). That means every decline has been a buying opportunity. There is no reason to expect a different outcome this time, so patient investors should feel comfortable buying high-conviction stocks today.
Admittedly, the current stock market correction may get worse, perhaps much worse, before it gets better. So investors should deploy capital at a measured pace rather than putting every spare dollar into the market right now. Personally, I think purchasing stocks in weekly or biweekly intervals is a sensible strategy.
