The Nasdaq Enters Correction: What to Expect Next

A stock market correction occurs when a major stock market index experiences a decline of between 10% and 20% from its recent highs. This is precisely what has happened to the Nasdaq Composite (^IXIC) over the last three months. Since it peaked on December 16, the Nasdaq Composite has fallen by more than 13%. As a result, it has officially entered correction territory.

Stock market corrections are rarely attributed to a single factor; rather, they are usually the result of a combination of several elements. This may involve economic changes, political events—both domestic and international—shifts in investor sentiment, and more.

Fortunately, there is a positive aspect to the current correction in the Nasdaq. History often provides valuable insights into what may happen next.

Historical Recovery of the Nasdaq

Watching your stock portfolio decline can be disheartening, but stock market corrections have been a part of the financial landscape for as long as the markets have existed. They are considered a natural segment of the stock market cycle.

Here are some of the notable corrections in the Nasdaq over the last two decades, including instances that led to bear markets, along with how the index has performed after 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%

While the percentages are noteworthy, the essential takeaway is that the Nasdaq has displayed impressive long-term returns despite facing short-term downturns. Although past performance is not necessarily indicative of future results, the long-term resilience of the Nasdaq can offer some comfort to investors who may be tempted to panic.

In fact, this could be an opportune moment to invest in the index while it is relatively undervalued, potentially allowing for more significant gains in the future.

How to Invest in the Nasdaq Composite

The Nasdaq Composite serves as an index; however, those interested in investing in it should consider purchasing an exchange-traded fund (ETF) that tracks the index. A solid option available for this purpose is the Fidelity Nasdaq Composite Index ETF (ONEQ).

This ETF comprises over 870 different stocks, which means it doesn’t precisely replicate the Nasdaq Composite—an index that monitors nearly every stock on the Nasdaq exchange. Nevertheless, it offers a cost-effective way to gain exposure to the index.

Below are the top 10 holdings in this 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%

This ETF provides exposure to some of the largest companies globally, although it is significantly tilted towards the technology sector, making up almost half of the total fund.

The Importance of Long-Term Investing

Since its inception in September 2003, this ETF has experienced various market cycles, ranging from favorable to unfavorable conditions, yet it has consistently outperformed the S&P 500, which is often seen as the benchmark for stock performance.

Instead of trying to time your investments perfectly, one effective strategy is to consider dollar-cost averaging. This approach typically involves investing a set amount of money at regular intervals, regardless of market conditions. You will buy stocks whether prices are high or low, allowing you to average your purchase price over time.

The strategy is particularly effective as it helps mitigate the impact of market volatility and enhances the likelihood of favorable outcomes over the long term.

It's advisable to approach investing with a calm demeanor, acknowledging that market fluctuations are part of the journey.

Nasdaq, correction, investing