Should You Buy Stocks During the Nasdaq Correction? Evidence Is Piling Up and Here's What It Shows.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) blasted higher over the past two years, climbing in the double digits in both 2023 and 2024, as investors placed big bets on growth. They were optimistic about a potentially lower interest-rate environment ahead and how that could favor growth stocks, and piled into stocks in the hot area of artificial intelligence (AI). All of this fueled a general excitement about investing, and this momentum continued in 2025 -- until recently.

Just last week, the Nasdaq tumbled into correction territory, falling more than 10% from its latest high on Dec. 16. And last year's biggest winners -- including AI giants Nvidia (NASDAQ: NVDA) and Palantir -- have seen their shares slide in the double-digits over the past month.

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How did we go so quickly from optimism about growth to worries about what's ahead? Certain economic indicators started the ball rolling, from a drop in consumer confidence in February to a weaker-than-expected jobs report. And policies from newly inaugurated President Donald Trump added to concerns -- particularly, the launch of tariffs on imported goods from China, Canada, and Mexico.

Considering all this, should you buy stocks during the Nasdaq correction? Evidence is piling up, and here's what it shows.

Image source: Getty Images.

From consumer confidence to inflation worries

First, I'm going to talk about this news that's been weighing on stocks. The Conference Board's measure of consumer confidence last month posted its biggest drop since August 2021, and though the latest jobs report showed growth, it was less than expected. After a long series of interest-rate increases to calm inflation over the past couple of years and the first rate cuts last fall, investors are eager to see clear signs of economic stability -- signs to support additional interest-rate cuts ahead.

This brings me to the point: Investors may worry and do just the opposite.

President Trump recently launched tariffs on imported goods from the three biggest trade partners of the U.S. The Trump administration says these tariffs are in response to a flow of lethal drugs into the U.S. through these particular countries. Investors worry, though, that the move may result in higher prices -- something that could keep interest rates high and hurt corporate profits and the general economy.

As a result, the growth-oriented stocks that led the Nasdaq higher over the past two years now are stumbling and have pushed the index into correction territory. Many investors continue to buy stocks in this environment, and you might be wondering whether you should do the same. After all, stock prices are getting cheaper.

Now I'll move on to the evidence, starting with a look back at history.

President Trump's first tariffs

During President Trump's first term, he launched tariffs on certain imported products, like steel and aluminum, something that affected various countries, and started a trade war with China. So this isn't the first time U.S. companies have faced a similar headwind.

But a look at S&P 500 (SNPINDEX: ^GSPC) earnings per share and Nasdaq's performance during President Trump's earlier tenure show mainly a decline during the early days of the coronavirus crisis in 2020. Otherwise, earnings and the index went on to gain.

^IXIC data by YCharts.

This doesn't mean tariffs won't weigh on companies or the economy this time around, but it suggests the impact may be temporary. The Nasdaq's increase also reinforces the idea that even after difficult moments, the market always has gone on to recover and advance over time.

The first point here is, yes, the tariffs represent a risk, but the impact may not be as deep or long-lasting as investors fear.

Dirt cheap stocks

Why are some investors continuing to buy stocks right now amid the market turmoil? It's because of the decline in valuations. Simply put, many top-quality companies have declined to dirt cheap levels.

For example, Nvidia is trading at only 24x forward earnings estimates -- even as the company reports double-digit and triple-digit revenue gains to record levels. This is down from the level of about 50x that's been common for Nvidia in recent months.

A look at the S&P 500 Shiller CAPE ratio -- a measure that considers stock prices and earnings per share over a 10-year period to account for economic shifts -- peaked at a level of more than 37 in December. It's only reached that level twice before since the index launched with 500 members in the late 1950s. In recent weeks, though, it's been on the decline, offering more evidence that stocks are getting cheaper.

S&P 500 Shiller CAPE Ratio data by YCharts.

My second point is that many stocks today are trading at bargain prices, offering investors fantastic buying opportunities.

What do these two points tell us? Should investors buy stocks during the correction?

Trump's tariffs, as mentioned, could weigh somewhat on the economy and companies in the near term. But evidence shows us this shouldn't damage quality companies over the long term.

If you buy today -- and you can do that for a great price -- and hold for the long term, you could score a win a few years down the road. Buying and holding is always the best way to maximize your potential for gains as it allows you to benefit from a company's progress and growth.

All of this means that now, during the Nasdaq correction, is a fantastic time get in on new-to-you stocks or add to your favorites.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.