The Nasdaq has best January performance since 2001, but there's a lot to come

The Nasdaq has best January performance since 2001, but there's a lot to come

The technology-laden Nasdaq Composite went up more than 10% in the last month after a down year in 2022, with history showing the stock-market index tends to perform well in the next 12 months after such a scenario, except in 2001, according to Bespoke Investment Group.

The Nasdaq had its best January performance since 2001, with a gain of 10.7%, according to Dow Jones Market Data. That was after plunging 33.1% in 2022, including an 8.7% drop in December, according to FactSet data.

After closing out an already bad year on a down note, the Nasdaq surged 10.7% in January, according to a report emailed Wednesday by Bespoke. There were 33 prior months where it rallied at least 10% since the inception of Nasdaq in 1971. After a 12 month stretch, the index was down, the number of occurrences drops to just 16 when narrowed to rallies of that magnitude. In such cases, the firm found the Nasdaq's performance to be positive over the next year, except in 2001 when there were four different 10% monthly gains and the Nasdaq was lower one year later after all four of them. In January 2001, the Nasdaq jumped 12.2%, after falling 39.3% over the past 12 months, according to the chart below. The index fell 30.2% over the next year.

With the current period often drawing comparisons to the bursting of the dot-com bubble from 2000 to 2002, it is not particularly comforting to see that there were multiple 10% monthly gains in 2001, and they were all followed by eventual declines, Bespoke said.

The Federal Reserve raised its benchmark interest rate in an effort to curb inflation, leading to a sluggish U.S. stock market. Technology and growth stocks were particularly hard hit.

Read: Joy of missing out on Here s the silver lining after 2022 stock market nightmare, says Ben Inker, GMO spokesman.

Fed Chair Jerome Powell is scheduled to hold a press conference Wednesday afternoon at 2: 30 p.m. Eastern time, after the U.S. central bank ends its two-day policy meeting. The market is expecting the Fed to raise its benchmark rate by a quarter of a percentage point to a range of 4.5% to 4.75%, possibly slowing its pace of rate hikes amid signs of easing inflation. The Fed's decision is due to be made at 2 p.m. Eastern Time.

The Nasdaq is only 1% higher than where it was at the end of November, but the strong start to the year has a lot of bulls newly emboldened, Bespoke wrote in a report emailed ahead of the market's open Wednesday. There is a minority of investors saying they won't get fooled again. The U.S stock market opened lower Wednesday. The Dow Jones Industrial Average DJIA was down 0.9% at the end of the day, whereas the S&P 500 SPX fell 0.5% and the Nasdaq COMP, at last check, fell 0.3%, according to FactSet data.

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