Nasdaq-100 History Indicates Potential for a Strong Recovery

The Nasdaq-100 fell 23% between Feb. 19 and April 8 due to tariff concerns, but history suggests tech investors who maintain positions during policy-driven downturns may be rewarded with strong gains, according to a new report from Nasdaq Global Indexes.

For investors questioning whether to hold or fold their tech positions amid the current market turbulence, Nasdaq's research offers a compelling historical perspective: Policy-driven selloffs have consistently been followed by strong rebounds, with forward two-year returns averaging over 85% after previous major downturns.

The recent market selloff has pushed the Nasdaq-100's forward price/earnings ratio to 21.6, its lowest level since November 2022. This valuation compression reflects market uncertainty rather than deteriorating company fundamentals, the report suggests.

"Long-term gains often follow market downturns," wrote David Tsoi, a researcher with Nasdaq Index Research, noting that investors have "generally been rewarded by investing during these periods."

Tech Sector Composition Influences Tariff Exposure

The three largest subsectors of the Nasdaq-100—software (18.1%), semiconductors (17.4%) and consumer digital services (9.8%)—have varying levels of vulnerability to international trade tensions, according to the report.

Microsoft Corp. (MSFT), the second-largest constituent in the index, demonstrates how some tech companies remain somewhat insulated from tariff impacts, according to Nasdaq's analysis.

The software giant benefits from "its less direct exposure to tariffs and a robust enterprise revenue mix," with a large portion of its business focused on cloud applications and infrastructure sold through long-term contracts to corporate clients, the report states.

In contrast to software companies, semiconductor firms face a different set of challenges in the current environment, according to the research.

Artificial intelligence semiconductor providers, especially Nvidia Corp. (NVDA), Broadcom Inc. (AVGO) and Marvell Technology Inc. (MRVL), "may experience limited demand disruption from tariffs due to their exposure to enterprise buyers with lower price sensitivity," the report noted.

Nasdaq-100 Outlook Remains Strong

While stock prices have dropped, the underlying business prospects for Nasdaq-100 companies remain strong, with analysts still projecting earnings-per-share growth to hit 18% year on year in 2025, according to the research.

This projected growth rate stands 53% higher than forecasts for the S&P 500, based on data from FactSet cited in the report, highlighting the tech-heavy index's continued earnings momentum despite market concerns.

Looking at historical patterns provides further optimism for long-term investors. The research documents an average 88% two-year return following previous tariff-related market dislocations, suggesting the potential for recovery once current uncertainties resolve.

During the March 2020 Covid-19 panic, for example, the Nasdaq-100 experienced a 13.2% two-day decline, followed by a 78.1% one-year return and an 85.1% two-year return, according to the report.