The second quarter of 2025 may see the Nasdaq Composite (^IXIC 0.60%) achieve a rare feat if it continues to climb through the end of June. The index is on the verge of entering a bear market and reaching a fresh all-time high, all in a period of just three months.
The Wall Street selloff kicked off in April over fears that President Trump's high tariffs would lead to resurgent inflation and a recession. However, the tech-heavy index -- like the rest of the stock market -- has rebounded as concerns about trade wars have eased on the hopes of productive negotiations with countries like China, and generally strong economic data.
Thanks to the improved investor sentiment, the Nasdaq closed Thursday at 20,167.91, just shy of the peak it set in December. The the index is within 0.2% of reaching a new record high.
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What a new record would mean
A bear market occurs when there's a decline of 20% or more from the market's recent peak. However, when a bear market ends is still up for debate with market followers using competing measures. That said, the average length of a bear market is around a year.
By one definition, if the Nasdaq Composite gains another 0.2% soon and sets a new all-time high, this bear market would be over in less than three months, an unusually rapid recovery and one with little historical precedent. However, similar patterns have happened twice in the last decade.
In February and March 2020, the index plunged as the COVID-19 pandemic swept across the world, and the Nasdaq bottomed out on March 23. After a surge that was propelled by rescue packages and financial stimulus from the federal government, the index hit a new all-time high on June 6 at 9,924.75, and it would continue to rally over the next 15 months, buoyed by soaring demand for all things tech due to the constraints of the pandemic. During that bull market, the index peaked on Nov. 19, 2021, at 16,057.44, gaining another 62% over the 17 months after it set an all-time high in June 2020.
Similarly, the Nasdaq fell into a bear market in late 2018 and bottomed on Dec. 24 on concerns about rising interest rates, a potential slowdown in the economy, and trade tensions with China. Those concerns turned out to be overblown, and the Nasdaq recovered to a new all-time closing high of 8,120.82 on April 23, 2019, just four months after it hit that cyclical bottom. The Nasdaq would add another 23% over the subsequent 10 months -- an uptrend that continued until the sell-off triggered by the start of the pandemic.
What it means for investors
In both of these examples above, the Nasdaq fell into a bear market, rebounded rapidly to set new highs soon after, and then continued to soar upward from there.
In the stock market, history doesn't necessarily repeat itself, but there are patterns, and the behaviors of the index in 2018 to 2019 and 2020 offer a reason to believe the Nasdaq will continue to march higher, even if it hits a new all-time high soon.
This time, though, there are outstanding issues to keep in mind. The original impetus for this year's bear market -- Trump's tariff plan -- is still largely unresolved. Trump put some of his tariffs on a 90-day pause on April 9 to allow for negotiations with all of the United States' trading partners, and the end of that period is rapidly approaching. He could extend the pause again or let those import taxes go back into effect.
Additionally, some economists and analysts believe that the impact of the new tariffs that are already in effect hasn't fully shown up yet in a way that consumers can recognize, as it can take months for products to flow through the global supply chain and get to store shelves, along with higher, tariff-boosted prices. Fed Chair Jerome Powell has expressed that view at times, saying that there's a high level of uncertainty in the outlook for the U.S. economy.
It's always difficult to predict the short-term direction of the stock market, which is why investors are better off focusing on the long term. However, corporate earnings remain strong, AI tailwinds have persisted, and economic data such as the unemployment rate and inflation remain generally favorable despite investor worries. If the tariff situation doesn't derail the economy in the near term, there are good reasons to believe the Nasdaq can indeed keep climbing in 2025.
