The NasdaqTogether with the S&P 500 and the Dow Jones Industrial averageBrudded higher in the past two years and delivered annual profits with double digits. And the momentum went until this year when investors piled up in fast-growing companies involved in hot technologies such as artificial intelligence and Kwantum Computing-Tot for short.
In recent weeks, a decrease in consumer confidence in February and a weaker than expected job report of uncertainty about the economy and the potential effect on the income of companies has fueled. And investors were also concerned about the impact of certain movements of President Trump – for example the launch of rates for import from Mexico, Canada and China. Trump introduced the rates at the beginning of last week, although he delayed them with a month about items that fall under the United States-Mexico-Canada agreement.
As a result, some of the strongest growth stocks, of Nvidia(Nasdaq: NVDA) Unpleasant AmazonHave seen their shares tumbling and last week the technology-heavy Nasdaq drag to correction area. Because of this decline you can wonder if you should really buy shares. However, before you decide, there are three things that every investor must know about the Nasdaq correction.
Image source: Getty images.
The Nasdaq started a correction on 6 March and fell more than 10% of a peak on December 16, although signing recovery showed during the next trade session, ending the week with 9.8% from that point. (To consider an index in the correction area, it must fall by 10% to 20% of the most recent high.)
It is too early to say whether this correction period will last, but here is a positive point to keep in mind: history shows us that corrections have generally led to positive performance. Of the 11 Nasdaq corrections since 2010, 10 have resulted in positive performance in the 12 months to be followed and the average annual profit has been more than 21%. Of course, history does not always repeat itself, but at least this trend shows us that corrections do not necessarily mean that a larger drop is simply ahead.
No investors like to see shares in their portfolio. But there is one positive point about a market correction, and that is the possibility to add to some of your favorite positions, possibly for a bargain – and also to find new buying options.
Although we all liked to see shares rising lately, the disadvantage was that the valuations of many players also started. We can use the prices of S&P 500 shares as an example, and one of the best ways to do this is by looking at the Shiller Cape ratio. This metric considers stock prices and the profit per share for a period of 10 years to adjust for fluctuations in the economy.
As the bullmarkt roared higher, this measure reached the level of 37, something it only made twice before since the launch of the benchmark as an index of 500 companies in the late 1950s. Although today it is still high at the level of 35, it has started.
S&P 500 Shiller Cape Ratio Data from Ycharts
And this happens as many shares, including Nasdaq players such as Nvidia and Amazon, who drifts to bargain area as part of the current market. Nvidia now acts 25 times forward income estimates, against 48 earlier this year. And Amazon now acts 31 times forward estimates, compared to 45 just a few months ago. So there is now a great time to negotiate.
Okay, so I know it’s hard to just ignore what’s going on right now, especially if your portfolio suffers. But at the moment it is important to shift your focus from today to the long term. If you look at the equity performance from this perspective, you will find that indexes have always recovered and continued after difficult periods, as we can see in this graph of the performance of the Nasdaq since 2010 – the time of the first correction I mentioned earlier.
^IXic data by YCHARTS
Each correction actually looks small from this lens, which suggests that if you invest in high -quality companies or related assets such as listed funds, these difficult times will probably not affect your return. In the long term, I mean that it holds for at least five years, but even better if the shares you select, make great interests for 10 years or more.
That is why it is crucial to deal with companies with solid long -term perspectives that will not be considerably injured in times of economic headwind and heavy markets. If you do this, sleep a lot easier during market corrections, you better feel about bragging those bargains that I was talking about, and you may put on for a long -term victory.
Have you ever had the feeling that you missed the boat to buy the most successful shares? Then you want to hear this.
In rare cases, our expert team of analysts gives one “Double Down” Recommendation for companies that they think is about to pop. If you are worried that you have already missed your chance to invest, this is the best time to buy before it is too late. And the figures speak for themselves:
Nvidia:If you invested $ 1,000 when we doubled in 2009,You would have $ 292,207!**
Apple: If you invested $ 1,000 when we doubled in 2008, You would have $ 45,326!**
Netflix: If you invested $ 1,000 when we doubled in 2004, You would have $ 480,568!**
At the moment we are publishing “Double Down” warnings for three incredible companies, and there may not be a different chance soon.
Go on “
*Stock Advisor Return on March 3, 2025
John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the board of directors of the Motley Fool. Adria Cimino has positions in Amazon. The Motley Fool has positions and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
Nasdaq Correction: 3 things that every investor should know was originally published by De Motley Fool
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