When examined with a wide lens, stocks have outdone all other asset classes in the return column. But this doesn't mean the stock market doesn't hit speed bumps or endure rough patches.
Following a period of seemingly unbridled optimism that began in October 2022, Wall Street has hit one of these rough patches over the last two months.
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The ageless Dow Jones Industrial Average(DJINDICES: ^DJI), benchmark S&P 500(SNPINDEX: ^GSPC), and growth-dependent Nasdaq Composite(NASDAQINDEX: ^IXIC) have all declined by a double-digit percentage from their respective record-closing highs. Both the Dow Jones and S&P 500 are firmly in correction territory, while the Nasdaq Composite is navigating its way through its first bear market since 2022.
Image source: Getty Images.
When volatility picks up on Wall Street, it's only natural for investors to look for answers and an edge as to what might come next for stocks. They do this by examining data points and predictive tools that have previously correlated very strongly with upside or downside moves in the Dow, S&P 500, and/or Nasdaq Composite. Even though no forecasting tool or prior event can concretely guarantee what will happen next, history does have a tendency to rhyme on Wall Street.
On Tuesday, April 22, one of these rare but highly correlative events occurred with the growth-driven Nasdaq-100 -- and if history were to rhyme once more, long-term investors would have a lot to smile about.
Five factors that have caused stock market volatility to soar
Before digging into this relatively unique event that should be raising eyebrows on Wall Street, it's imperative to understand why the Dow, S&P 500, Nasdaq Composite, and Nasdaq-100 have been whipsawed violently in recent weeks. Though fear and uncertainty are the symptoms that result in outsize directional moves in the stock market's major indexes, the root cause(s) of fear and uncertainty can be boiled down to five factors.
The obvious volatility impetus is President Donald Trump's tariff announcements. The president instituted a 10% global tariff on imported goods, as well as implemented higher "reciprocal tariffs" on countries that have traditionally run trade deficits with the U.S. Even though these reciprocal tariffs are on a 90-day pause as of April 9, there's still very clear concern that tariffs will increase the prevailing rate of inflation domestically, as well as slow economic growth.
Another issue, which builds on this initial point, has been the lack of a clear and cohesive message from President Trump and his administration. The stock market thrives on transparency and predictability. Changing which countries and products are subject to tariffs, along with reciprocal tariff rates, on a regular basis isn't instilling confidence in equity markets.
The historical priciness of stocks entering 2025 deserves its fair share of the blame for whipsawing Wall Street. Keeping in mind that "value" is a subjective term that can vary from one investor to the next, the S&P 500's Shiller price-to-earnings (P/E) ratio (also known as the cyclically adjusted P/E Ratio, or CAPE Ratio) nearly hit a multiple of 39 in December. This marked its third-highest reading during a continuous bull market when back-tested to January 1871. Prior instances of extended valuations have led to downturns of 20% or greater for the stock market.
Fourthly, investors have clear reservations about the recent spike higher in Treasury bond yields. When Treasury bond yields soar, it can make borrowing a lot costlier for consumers and businesses, which ultimately acts as a drag on U.S. economic growth.
Lastly, the Atlanta Federal Reserve's GDPNow model has forecast a decline in the U.S. economy for the first quarter (Jan. 1, 2025 – March 31, 2025). In late January, the Atlanta Fed's model expected U.S. Q1 gross domestic product (GDP) would grow by nearly 4%. But as of an April 17 update, the GDPNow forecast is calling for a 2.2% contraction in U.S. GDP for the first quarter. In other words, it's stoking recession fears.
Image source: Getty Images.
The Nasdaq-100 just completed a rare feat -- and it's great news for opportunistic investors
With a clearer picture of the dynamic variables whipsawing the market's major stock indexes on a daily basis, let's return to the Nasdaq-100's rare feat, and what it means for future stock returns.
Despite the Dow, S&P 500, and Nasdaq Composite all logging their largest respective single-session point gains in history on April 9, April 22 held special importance to the Nasdaq-100, which is comprised of 100 of the largest nonfinancial companies that list their shares on the Nasdaq stock exchange. Due to some Nasdaq-100 companies having more than one share class, the Nasdaq-100 currently has more than 100 components.
On Tuesday, April 22, every component in the Nasdaq-100 finished higher. This is only 10th time in 23 years that investors have witnessed all components of this growth-focused index end in the green during a single trading session.
Thanks to data aggregated and published on social media platform X by Jonathan Harrier, the chief investment officer for more than 23 years for CFG Wealth Management Services, we know the dates for all 10 of these rare occurrences where the Nasdaq-100 finished green across the board.
You'll note in the post above that Harrier lays out seven of the dates since 2022 in his table. In his post, he also alludes to this uncommon event occurring on June 24, 2022, as well as Oct. 4, 2022.
While rarely seen events can be fun to talk about, and history doesn't guarantee what will happen in the future, what's far more intriguing is how the stock market has performed following these outsize green events for the Nasdaq-100's components. Using return data from YCharts, here's how the Nasdaq-100 fared at the one-, three-, and five-year marks following these exceptional up days (where applicable):
Sept. 18, 2007: one year (-16.6%), three years (-3.9%), five years (+40.4%)
Oct. 13, 2008: one year (+21%), three years (+62.8%), five years (+126.2%)
Nov. 24, 2008: one year (+54.7%), three years (+87.7%), five years (+196.4%)
Sept. 1, 2010: one year (+21.9%), three years (+68.9%), five years (+127.6%)
Aug. 11, 2011: one year (+25.7%), three years (+80.5%), five years (+121.7%)
Dec. 20, 2011: one year (+18%), three years (+87.6%), five years (+117.1%)
Oct. 8, 2014: one year (+7.7%), three years (+50.1%), five years (+88.2%)
June 24, 2022: one year (+23%)
Oct. 8, 2022: one year (+35.6%)
April 22, 2025: To be determined...
One year after an all-green finish for the Nasdaq-100, the index is higher 89% of the time, by an average of 21.2%. For some added context, the Nasdaq-100 has generated an annualized return, without dividends, of around 14% since 1985.
^NDX data by YCharts. Nasdaq-100 performance period from Jan. 1, 2002 to April 23, 2025.
It's a somewhat similar story when looking three and five years out after one of these infrequent across-the-board up days. At the three-year mark, the Nasdaq-100 was higher 86% of the time, with an average return of 62%. Meanwhile, the Nasdaq-100 was higher 100% of the time after five years, with a scorching-hot average return of 116.8%!
Collectively, the Nasdaq-100 is higher in 21 out of 23 measurable instances, when examining applicable future returns. That's a 91.3% success rate of forecasting future upside in this growth stock-dominated index.
Though we're never going to be able to predict when these outsize moves will happen in Wall Street's widely followed stock indexes, periods of heightened volatility consistently offer the best buying opportunities for long-term investors.
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