Home Stock list Down 26%, is the Nasdaq poised to rally in the last half of 2022?

Down 26%, is the Nasdaq poised to rally in the last half of 2022?

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For investors in high-growth companies, the first half of 2022 has felt like a roller coaster that only goes downhill.

In fact, the Nasdaq Composite Index recorded its worst first half of any year on record.

As the market heads into the back nine of 2022, the question on all of us is “Will it get any better?” There are countless factors that will determine whether the next six months will be a story of recovery or just more pain for the Nasdaq and the market as a whole.

Image source: Getty Images.

Why the Nasdaq has been crushed so far

In an effort to keep this article brief, I’ll provide a list of reasons why the market as a whole (but especially the Nasdaq) has been beaten so far in 2022:

  • We are still in a global pandemic.
  • The war between Russia and Ukraine has created unprecedented uncertainty and fear.
  • Inflation has reached its highest level in over 40 years (with few signs of slowing).
  • Interest rates are on the rise.
  • Gross Domestic Product (GDP) is slowing, indicating an impending recession (if we’re not already in one).

These macro factors caused the market, largely influenced by short-term sentiment, to flee risky stocks (ie growth stocks) for the more stable blue chips.

Things got even worse as consumer confidence weakened, further suggesting that we are heading into a recession. The Conference Board recently announced that the consumer confidence index fell to its lowest level since February 2021.

It’s safe to say that the short-term economic outlook is not sunshine and rainbows.

Reasons to be optimistic

Even with all this gloom, there’s still reason to be excited about the future of stocks, even growth stocks.

First, we know that the stock market is a forward looking machine. This means that a lot of the negativity is embedded at current levels. Although things can always get worse, if even one of the more gloomy macroeconomic factors starts to turn around, the market could start to take off.

Second, while inflation has generally driven down stock prices, Warren Buffett said in his 2008 book New York Times opinion piece, “Buy American. I am”:”[I]In the early 1980s, it was time to buy stocks when inflation was raging and the economy was down.”

Buffett refers to one of the hottest periods of inflation in the late 1970s and early 1980s:

Year

Annual inflation rate

Federal funds rate

1977

6.7%

6.5%

1978

9%

ten%

1979

13.3%

12%

1980

12.5%

18%

nineteen eighty one

8.9%

12%

Data source: Bureau of Labor Statistics and Federal Reserve Bank of New York

Looking at the numbers above, one would assume that the stock market fell during this period. But not exactly:

^ SPX Chart

^ SPX data by YCharts

There are certainly countless differences between the last prolonged period of high inflation and the current environment, but it shows that the market does not always behave as expected.

He’s constantly looking to the future, so if the gloom starts to lighten even slightly, the second half of the year could be better than those first six months.

The Nasdaq is poised to outperform

Whenever the market starts to rally (and it will at some point), history suggests the Nasdaq will rise faster than the S&P 500:

^IXIC Chart

^ IXIC data by YCharts

Even with rising interest rates, the Nasdaq is heavily weighted to big tech names that don’t depend on debt to fund their operations and pursue growth. Young, unprofitable start-ups are in a very vulnerable position, but Amazon (AMZN -0.68%)the sand Apple (AAPL 0.47%)s of the world will maintain their dominance and increase their results.

Although there is more ground to catch up with growth stocks, investors entering at current prices could enjoy healthy gains over the next few years, assuming they have the courage to ride out short-term economic uncertainty. term.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Mark Blank has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon and Apple. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.