The Nasdaq Faces a Correction: Insights into Historical Trends

A correction in the stock market refers to a decline of 10% to 20% from recent peaks in major stock market indices. Recently, the Nasdaq Composite (^IXIC) has entered this phase, experiencing a drop of over 13% since it hit a new high on December 16. This indicates that the Nasdaq is now in what analysts term as correction territory.

Market corrections are rarely triggered by a single event; instead, they result from a mix of factors. These can include shifts in the economy, changes in political dynamics (both domestic and international), investor behavior, and other influences.

However, there is a positive aspect to consider during this Nasdaq correction: historical patterns suggest that recoveries are possible.

Historical Recoveries of the Nasdaq

While seeing a decline in your investment portfolio can be distressing, corrections are a normal aspect of the stock market's lifecycle. Over the past two decades, the Nasdaq has seen several notable corrections, some of which transitioned into bear markets. Here’s a summary of some of those corrections, detailing the percentage declines and gains following each downturn:

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%

These figures illustrate that despite short-term declines, the Nasdaq has historically rebounded robustly over time. While past performances do not guarantee future results, the historical resilience of the index may provide some reassurance to investors, indicating that now is not the time for panic.

This could even be a strategic opportunity to invest when the index is perceived as trading at a “discount,” potentially leading to larger gains in the future.

Investing Options in the Nasdaq Composite

If you're considering investing in the Nasdaq Composite, one effective way is through an exchange-traded fund (ETF) that tracks the index. A well-regarded option is the Fidelity Nasdaq Composite Index ETF (ONEQ).

This ETF includes just over 870 holdings, and while it doesn’t completely replicate the Nasdaq Composite—which encompasses nearly all stocks traded on the Nasdaq—it still offers an affordable way to gain exposure to the index.

Below are the top 10 stock holdings in the ETF:

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%

Data source: Fidelity.

Investing in this ETF provides exposure to some of the globe's leading companies, yet the fund is heavily weighted towards the technology sector, which accounts for almost half of its total holdings.

Investing Mindset During Volatility

Since the ETF's inception in September 2003, it has navigated various market conditions, experiencing positive and negative cycles. Still, it has consistently outperformed the S&P 500, a standard benchmark for investment performance.

Instead of trying to determine the ideal moment to invest, it is often effective to adopt a strategy known as dollar-cost averaging. This approach involves committing to a regular investment schedule, regardless of the current stock price. It ensures that investments continue even during periods of price hikes or declines.

Sometimes, you may invest while prices are high, and other times when they are low. Trusting in dollar-cost averaging can help mitigate market fluctuations and benefit your long-term strategy.

Disclaimer: Investing is subject to risks, including potential loss of principal. Past performance is not indicative of future results. Always do due diligence or consult with financial advisors before making investment decisions.

Nasdaq, Correction, Investing