The giants were toppling like dominoes. And they crashed with an audible “thud”…
Netflix fell 76% from its 2021 peak to its 2022 low… Microsoft dropped 38%… Amazon slid by more than 50%… and even Alphabet fell 44%.
We saw massive drawdowns in the biggest tech names last year – one after another. And the Nasdaq Composite Index as a whole fell 36%.
The beating was far worse than what we saw in the overall stock market. In fact, 2022 was one of the worst years in decades for the sector.
It was so bad that most people expected tech investments to plummet even more. But those folks have been disappointed…
The Nasdaq is up 21% so far in 2023. It turns out, that’s exactly what we should expect after studying history. And the second half of the year could lead to even bigger gains.
Let me explain…
Everyone gets bearish after a big fall in prices. That’s when fear takes over… It’s human nature.
Folks think stocks will continue to suffer just because the dark clouds remain. That’s why they believe staying out is the best bet.
But history shows that’s not the case. In fact, it’s a much better idea to buy after a terrible year in tech stocks… instead of waiting for the clouds to disappear.
To see it, let’s take a closer look at the Nasdaq. This index launched in 1971. That gives us roughly 50 years of data to sift through.
As you can see in the table below, the index tends to rally after an extremely bad year. And it’s rare to see two consecutive losing years in a row…
The Nasdaq has suffered a losing year 13 times since 1971. But it was up the next year 10 of those 13 times. That’s a 77% win rate after a down year. Check it out…
The individual results were impressive, too. Among the winning outcomes, the average gain was 33.7%… And in two cases, the Nasdaq returned 50% or more in a year. That’s incredible.
Now, this indicator isn’t perfect. Three of the initial down periods – once in 1973 and twice the early 2000s – led to more losses in the following year. But those were exceptions… The overall data is in favor of those who are bullish.
This tells us that last year’s crash is probably over. And we’re already seeing that bullish pattern take hold this year… The Nasdaq is up 21% year to date.
We should draw two conclusions here…
First, the bottom is almost certainly in for tech stocks. The rally has been too strong and has lasted too long for a reversal to be likely.
Second, while the 2023 gain has been big so far… it could be much higher by the end of the year.
We’re still well below the average gain of 33.7% that we saw among winning years in cases like these. And another knockout year of 50%-plus gains is entirely possible, given the strength in the Nasdaq.
The current rally surprised almost everyone. It would be easy to assume that you missed the biggest gains. But history disagrees. This is likely only the beginning… And that means you want to own stocks – specifically tech stocks – right now.
Good investing,
Brett Eversole
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Source: Daily Wealth