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The Nasdaq Composite (^IXIC 2.52%) has officially entered a bear market, marking a significant downturn as it drops over 20% from its peak. This decline intensifies following the announcement of new tariffs by President Donald Trump on April 2, targeting over 180 countries with rates ranging from 10% to 99%.
Among the notable tariffs are those imposed on imports from key countries like China, Taiwan, and Vietnam, which are critical to many technology firms. This has led investors to exercise increased caution regarding the potential ramifications of these tariffs, resulting in more severe losses for the Nasdaq Composite in comparison to other prominent indexes, such as the S&P 500 (^GSPC 2.27%) and the Dow Jones (^DJI 1.90%).
While downturns in the stock market can cause panic, historical data provides some reassurance, suggesting that a measured response is appropriate.
The Nasdaq’s Historical Context
The Nasdaq Composite has encountered bear markets before, with the current decline marking the fifth since the year 2000. Below is an overview of these bear markets and their corresponding declines:
Bear Market Duration
Nasdaq Percentage Decline
- Dec. 2024 to April 2025 (Current) – (23%)
- Nov. 2021 to Dec. 2022 – (33%)
- Feb. 2020 to March 2020 – (30%)
- Oct. 2007 to March 2009 – (54%)
- March 2000 to Oct. 2002 – (78%)
Source: YCharts. Current bear market percentage decline as of April 4, 2024, the recent low point.
Understanding that bear markets are an inherent aspect of the stock market cycle is crucial for investors. Since its inception in February 1971, the Nasdaq Composite has recorded nine bear markets. However, despite these downturns, it has proven to be a strong long-term investment.
As an illustration, using a point level of 15,600 for the Nasdaq Composite at the time of writing, here’s how the index has rebounded following previous bear markets (excluding the current one):
December 2022: 45%
March 2020: 127%
March 2009: 1,085%
October 2002: 1,280%
Investing Strategies for the Current Market
For those considering investments in the Nasdaq at this juncture, an effective approach is to explore exchange-traded funds (ETFs) such as the Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE 2.09%). This ETF tracks the Nasdaq-100, which comprises the 100 largest non-financial stocks on the Nasdaq stock exchange.
The unique aspect of this ETF is its equal-weighted structure, allowing investors to spread their capital equally among all participating companies, rather than weighting it based on market capitalization, as is common with traditional Nasdaq-100 indexes.
The fact that the conventional Nasdaq-100 is market-cap-weighted means that major tech stocks significantly influence the index’s performance. Companies like Apple, Nvidia, and Microsoft collectively represent a substantial portion, which makes the index more vulnerable during market fluctuations precipitated by events such as the recent tariff announcements.
Maintaining a diversified investment portfolio is essential, and the equal-weight Nasdaq-100 ETF offers a way to engage with the Nasdaq without having an excessive reliance on a few dominant tech companies.
Consider a Gradual Investment Approach
Given the current economic volatility, it may not be prudent to invest a large sum at once, even in a fund like the equal-weight Nasdaq-100 ETF. A preferable strategy would be dollar-cost averaging.
Dollar-cost averaging involves selecting an investment amount and allocating it over time through regular purchases, which can mitigate the risk associated with market fluctuations. For instance, if your total investment goal is $1,000, you might consider segmenting this into ten $100 installments, four $250 investments, or any configuration that suits your financial planning.
This method helps mitigate the risk associated with investing a lump sum before a potential market downturn and can help buffer the consequences of volatility.
Ultimately, focusing on long-term growth is essential. Don’t let temporary market dips deter you from investing. With a cautious and steady approach, you may benefit from current lower price levels.
Source
www.fool.com