The Nasdaq Enters Correction Territory: What History Tells Us Next

A stock market correction refers to a decline of between 10% and 20% from the recent high of a major stock market index. Recently, the Nasdaq Composite (^IXIC) reached a record high on December 16. However, as of the latest close on Tuesday, the index has dropped over 13%, officially placing it in correction mode.

Stock market corrections can be caused by a variety of factors, and there is rarely just one event that leads to a correction. Influencing elements can include economic conditions, political events both domestic and international, fluctuations in investor sentiment, and other market dynamics.

Despite the current decline, history suggests that there is a silver lining for investors considering the potential recovery from these corrections.

Historical Resilience of the Nasdaq

No one enjoys watching their stock portfolio decrease in value, but market corrections are a normal part of the economic cycle. They have been a part of the stock market for as long as it has existed.

Here are some significant Nasdaq corrections from the past two decades, including instances where they turned into bear markets, and what happened after they reached their lowest point:

Period	Decline (Peak to Trough)	Gains Since Trough
November 2021 to October 2022	(35%)	56%
February 2020 to March 2020	(30%)	154%
September 2018 to December 2018	(22%)	182%
April 2011 to October 2011	(19%)	647%
October 2007 to March 2009	(57%)	1,270%

While the exact percentages may differ based on the time of observation, the main takeaway is that despite experiencing short-term declines, the long-term performance of the Nasdaq has been notably strong.

Although past results are not necessarily indicative of future performance, the historical resilience of the index may provide some reassurance to investors, indicating that now may not be the time to panic.

This could also present an opportunity to invest in the index while it is momentarily trading at a perceived “discount,” potentially opening doors for greater returns in the future.

Investing in the Nasdaq Composite

The Nasdaq Composite is primarily an index, but individuals interested in investing in this index may want to consider an exchange-traded fund (ETF) that tracks its performance. One noteworthy option is the Fidelity Nasdaq Composite Index ETF (ONEQ).

This ETF includes over 870 holdings and while it does not perfectly replicate the Nasdaq Composite index, as it tracks nearly all stocks listed on the Nasdaq, it still provides a solid way to gain exposure at a relatively low cost.

The ETF’s top 10 holdings include:

Company	Percentage
Apple	11.92%
Nvidia	9.97%
Microsoft	9.62%
Amazon	7.28%
Meta Platforms	4.74%
Alphabet (Class A)	3.24%
Alphabet (Class C)	3.11%
Tesla	3.07%
Broadcom	3.04%
Costco Wholesale	1.50%

This ETF provides exposure to some of the world’s top companies, although it is heavily weighted towards the technology sector, which makes up nearly half of the entire fund.

Maintaining Investment Consistency

Since its inception in September 2003, this ETF has weathered various market climates, seeing both periods of high and low performance. Despite this fluctuation, it has consistently outperformed the S&P 500, a commonly used benchmark for stock and ETF performance.

Instead of trying to time investments perfectly, a reliable strategy is to engage in dollar-cost averaging. This investment approach involves committing to a set schedule for investing regardless of current market prices. Whether the market is on the rise, facing a downturn, or staying steady, the goal is to maintain a consistent investment approach.

By using dollar-cost averaging, you may invest when prices are high or low. Over time, this method can help mitigate some of the volatility present in the markets and potentially yield favorable results.

Note: The information shared in this article is for informational purposes only and should not be construed as financial advice.

Nasdaq, Correction, Investing