This year has been an impressive one for two of the three major US stock market indexes. S&P 500 has increased by more than 15%, but the Nasdaq Composite is leading the way, with an increase of more than 20%.
After the Nasdaq’s first half, investors have been both optimistic and skeptical. Some think the index will continue its run, while others believe a pullback will occur sometime this year. No one can say for sure how the rest of the year will play out, but you can look to history for some perspective.
What’s Driven the Nasdaq’s Gains This Year?
The Nasdaq Composite is an index that tracks the performance of every stock on the Nasdaq stock exchange. While it includes companies from nearly every major sector, the technology sector has driven much of the growth this year. Specifically, the seven largest holdings are leading the way.
The habits Fidelity Nasdaq Composite ETF (NASDAQ: ONEQ) For comparison, here are the seven largest holdings and approximately how much of the index they represent:
-
Microsoft: 11.37%
-
Apple: 10.95%
-
Nvidia: 10.11%
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Alphabet: 7.39%
-
Amazon: 6.76%
-
Meta platforms: 3.78%
-
Broadcom: 2.26%
While the Nasdaq contains more than 3,100 companies, it is highly concentrated in its top holdings. This has worked to its advantage, as those companies (except Apple) have significantly outperformed the broader market so far in 2024.
When seven companies make up approximately 52% of an index and the worst performing company is still up double digits over the year, it can’t help but produce good results (albeit with greater risk).
What the Historical Data Says About How the Nasdaq Could Close 2024
It is important to emphasize that trying to predict short-term stock market movements is a fool’s game. No one — regardless of “expertise” or resources — can accurately predict how the stock market will perform.
You might think you can do that by making rational assumptions, but the stock market itself is notoriously irrational, so that’s never guaranteed. That said, it’s never a bad idea to look to history for insight, as long as you don’t use it to make definitive predictions.
Below is a look at the Nasdaq Composite’s returns over the past ten years in the first half of the year and where it ended the year:
|
Year |
First half returns |
End of year earnings |
|---|---|---|
|
2023 |
32% |
43.4% |
|
2022 |
(29.5%) |
(33.1%) |
|
2021 |
12.5% |
21.4% |
|
2020 |
12.1% |
43.6% |
|
2019 |
20.7% |
35.2% |
|
2018 |
8.8% |
(3.9%) |
|
2017 |
14.1% |
28.2% |
|
2016 |
(3.3%) |
7.5% |
|
2015 |
5.3% |
8.4% |
|
2014 |
5.5% |
15% |
Data source: Macrotrends. Table by author.
In eight of the last 10 years, the Nasdaq has rallied higher in the second half of the year and finished stronger. That’s encouraging news for investors, especially since many of the top companies that lead the index are loaded with momentum that could carry through the rest of the year and beyond.
How to Invest in the Nasdaq Composite
A great way to invest in the Nasdaq Composite is through an exchange-traded fund (ETF) such as the Fidelity Nasdaq Composite ETF. Because it mirrors the Nasdaq Composite, you get exposure to the entire index rather than a more concentrated selection of stocks, as with the Nasdaq-100.
While it is primarily tech-driven like the Nasdaq-100 (50.58% of the ETF), it also covers ground in other sectors:
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Communication services: 15.04%
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Cyclical consumer product: 13.07%
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healthcare: 6.79%
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Industrial: 3.84%
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Consumer defensive: 3.80%
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Financial services: 3.54%
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Basic materials: 1.04%
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Utilities: 0.89%
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Property: 0.79%
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Energy: 0.62%
It’s also a relatively cheap option, with an expense ratio of 0.21%, or $2.10 per $1,000 invested. It probably shouldn’t be the foundation of your stock portfolio, as it’s lacking in a few sectors, but the ETF can be a valuable addition.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The Nasdaq is up 20% through the middle of 2024. Here’s what history says could happen in the second half. was originally published by The Motley Fool
