After a terrible 2022, the tech-heavy Nasdaq Composite soared over 10% in January; the index lost 33.1% last year, and has rallied 10.7% so far in 2023—its best January performance since 2001, according to Dow Jones Market Data. While historically that would be cause for celebration, looking back to 2001 might make some investors more cautious, contends an article in MarketWatch.
While the Nasdaq has seen 33 rallies of at least 10% since its creation, the rallies that were preceded by a 12-month down stretch—such as the current one—were actually only 16 out of those 33. On the whole, those rallies were then followed by a year of gains—except in 2001, when the Nasdaq rallied 4 times, only to end the year lower after all those rallies. It then plunged 30.2% over the course of the following year. That historical data is “not particularly comforting,” say analysts from Bespoke Investment Group, who complied the research cited in the article, especially since the current bear market has been frequently compared to the dot-com bubble burst of 2000-2002.
Tech stocks, which make up the majority of the Nasdaq, have been battered by the Fed’s aggressive interest rate hikes. While the latest rally puts the index only 1% higher than where it was at the end of November, many Wall Street bulls are taking that as a positive sign to jump back in. But there are also a group of investors who have sworn not to get fooled again, according to Bespoke’s report. It may have been more than 20 years ago, but apparently the sting of those 2001 rallies and the losses that followed still burns.
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