The inventory market has despatched buyers on a roller-coaster experience over the previous few years. Ultra-low rates of interest and pandemic-induced authorities stimulus despatched the Nasdaq-100 expertise index into rally mode throughout 2020 and 2021. But final yr, the U.S. Federal Reserve started to aggressively tighten financial coverage, which despatched the index plunging 33% for the yr.

Based on historic knowledge going again to its inception in 1986, the Nasdaq-100 not often falls in consecutive years. True to type, it has bounced again with a 39% achieve yr up to now. With simply three months remaining within the yr, it is a good time to look forward to 2024 and assess what may very well be in retailer for the market.

Historical knowledge can provide helpful hints about how the Nasdaq-100 will carry out subsequent yr, and the image seems very constructive. I’ll break it down beneath.

Image supply: Getty Images.

The Nasdaq-100 is led by among the world’s largest expertise firms

The Nasdaq-100 is made up of 100 of the most important non-financial firms listed on the Nasdaq stock exchange. However, there are literally 101 fairness securities within the index as a result of it consists of each Class A and Class C shares of Google guardian Alphabet.

One of the preferred methods for buyers to achieve publicity to the Nasdaq-100 is thru the Invesco QQQ Exchange Traded Fund (QQQ -1.71%), which tracks the index. Since the expertise sector may be very top-heavy, a small variety of firms have an outsized affect on the index (and the QQQ ETF) total. In truth, the highest 5 of the 101 inventory holdings account for nearly 34% of its weight.

Apple, with a $2.7 trillion market capitalization, is the world’s largest firm. As a consequence, it is no shock it is the highest holding within the index. Microsoft sits within the second spot, and the highest 5 is rounded out by Amazon, Nvidia, and Meta Platforms.

The first 4 of these firms are price $1 trillion or extra, with Meta not far behind. They’re additionally among the top-performing shares in 2023. Apple is the laggard of the bunch with a year-to-date achieve of 35%, whereas Nvidia leads the pack after gaining a whopping 200% to date.

The weighting of the Nasdaq-100 towards these high-flying tech giants is the rationale it has greater than doubled the 16% achieve of the benchmark S&P 500 index this yr, which has a much more various composition.

Here’s how the Nasdaq-100 may carry out in 2024, in accordance with historic knowledge

Where the Nasdaq-100 index finally closes 2023 may have an effect on its efficiency in 2024, not less than in accordance with historic knowledge going again to 1986.

Years during which the index has achieved a achieve of 40% (or extra) are virtually at all times adopted by additional beneficial properties the next yr, except for 1999, which preceded the burst of the dot-com bubble:

Data supply: Slickcharts. Table by writer. YTD = yr up to now.

That means if the Nasdaq-100 holds its present beneficial properties for 2023 — or provides to them — there is a chance it may additional rise in 2024 with a mean achieve of 24.1% primarily based on the above knowledge.

Of course, historical past alone should not be the rationale buyers purchase shares. Several elements may swing the market by some means subsequent yr, and interest rates is perhaps on the prime of that listing. Most economists consider the U.S. Federal Reserve has virtually finished sufficient to remedy America’s inflation challenges, however there’s a small chance of yet one more rate of interest hike in November.

Attention will quickly flip to rate of interest cuts as a substitute, which may start in June 2024, in accordance with present estimates. If that occurs, extra buyers will doubtless flip to shares as they hunt for increased returns, and corporations will be capable of borrow cash at cheaper rates of interest to gas progress. Both of these issues are tailwinds for the broader market.

However, if charges stay increased for longer — or worse, the Fed will increase them greater than anticipated — the reverse may occur, which can create a headwind for the inventory market.

In any case, prior tendencies level to a different good yr for the tech index. But the long-term image is much more thrilling as a result of firms like Nvidia proceed to work on modern new applied sciences like artificial intelligence. Through that lens, there’s by no means a nasty time to purchase a progress index just like the Nasdaq-100 as long as you are keen to carry for a interval of not less than 5 years.