The Nasdaq Has Entered Correction Territory. History Says This Will Happen Next.
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A stock market correction is a drop in a major stock market index between 10% and 20% from recent highs. That's exactly what has happened with the Nasdaq Composite (NASDAQINDEX: ^IXIC) over the past three months. Since reaching a new high on Dec. 16, the Nasdaq Composite is down more than 13% through Tuesday's close and in correction mode.
There typically isn't one single event that causes a stock market correction; it's often a combination of a few factors. It could be because of the economy, political happenings (domestic and international), investor speculation, or any of the like.
There is a silver lining to the current Nasdaq correction: History may be on your side with what happens next.
^IXIC data by YCharts
How has the Nasdaq bounced back from previous corrections?
Nobody likes seeing their stock portfolio drop, but stock market corrections have been around virtually as long as the stock market itself. They're a natural part of the stock market cycle.
Below are a few notable Nasdaq corrections (with some turning into bear markets) in the past two decades and how the index has performed since bottoming out in each:
| 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% |
Data sources: YCharts. Percentages are rounded to the nearest whole percent and may vary based on viewing date.
Aside from the specific percentages, the larger point is that regardless of short-term slumps in the Nasdaq (or major stock market indexes in general), the long-term value it has returned has been impressive.
Of course, past performances don't guarantee that it will happen that way again, but the historical long-term resilience should reassure investors that it isn't time to sound the alarm and go into full panic.
If anything, this can be a time to invest in the index while it's trading at a "discount" in order to potentially increase your gains down the road.
What's the best way to invest in the Nasdaq Composite?
The Nasdaq Composite is an index, but folks interested in investing in it should consider an exchange-traded fund (ETF) that follows the index. A solid option is the Fidelity Nasdaq Composite Index ETF (NASDAQ: ONEQ).
Consisting of just over 870 holdings, the ETF doesn't perfectly mirror the Nasdaq Composite, which tracks almost every stock trading on the Nasdaq stock exchange. Regardless, the ETF is a great way to gain exposure to the index at a low cost.
Below are the ETF's top 10 stock holdings:
| 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. Percentages as of Feb. 28.
Investing in this ETF exposes you to some of the world's top companies, though it is heavily skewed to the tech sector, accounting for almost half of the fund.
Focus on investing through the good, bad, and ugly
Since this ETF was created in September 2003, it has experienced great times, terrible times, and everything in between. Still, it has outperformed the S&P 500 -- which is often used as the benchmark for stock and ETF performance -- in that span.
ONEQ data by YCharts
Instead of focusing on the "right" time to invest, one of the best things you can do is embrace dollar-cost averaging.
Dollar-cost averaging typically involves putting yourself on a set investing schedule and sticking to it regardless of stock prices at the time. It doesn't matter if stock prices are rising, falling, or remaining stagnant; your job is to approach investing as business as usual.
Sometimes, you'll invest when prices are overvalued; sometimes, you'll invest when they're undervalued. The key is to trust that, over time, dollar-cost averaging will help offset market volatility and work out in your favor.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $282,016!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $41,869!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $482,720!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
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*Stock Advisor returns as of March 10, 2025
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, 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, Microsoft, Nvidia, and Tesla. 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.
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