Understanding the Nasdaq Bear Market and Investment Strategies

Last week brought a notable market sell-off reminiscent of the crash in 2020. In just two days, namely Thursday and Friday, the Nasdaq Composite (NASDAQINDEX: ^IXIC) declined by 10.7%, while the S&P 500 (SNPINDEX: ^GSPC) dropped 9.9%, and the Dow Jones Industrial Average (DJINDICES: ^DJI) fell by 8.8%.

This sell-off has driven the Dow into correction territory, while the S&P 500 also moved back into correction, and the Nasdaq shifted from correction to bear market status. A correction is defined as a drop of at least 10% from a recent peak, whereas a bear market is classified as a decline of at least 20%.

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Here are essential insights into the current Nasdaq bear market, strategies for preparing for it, and potential duration expectations.

Image source: Getty Images.

Examining Bear Market Patterns

The duration of this Nasdaq bear market remains uncertain. However, historical data provides a glimpse into average bear market lengths. Over the past decade, the Nasdaq has faced six corrections, four of which converted into bear markets. These occurred during the trade war sell-off in late 2018, the pandemic-related decline in 2020, the pullback in 2022, and the current bear market. While the sell-offs in 2018 and 2020 were brief, the Nasdaq took until early 2024 to reclaim its previous high after the 2022 bear market.

The chart below illustrates the Nasdaq’s performance over the last decade. Noteworthy is that the bear markets of late 2018 and early 2020 display V-shapes, whereas the 2022 bear market appears more as a U-shape.

Data by YCharts.

Since 1928, the S&P 500 has experienced 22 bear markets, averaging a duration significantly shorter than periods of bull markets. The gains amassed during bull markets often outweigh losses accrued during bear markets. Notably, investing in quality stocks during bear markets has historically been a sound strategy for building wealth over time.

Strategizing Investment During Bear Markets

In bear markets, attempting to precisely time the bottom is generally unproductive. Instead, being approximately right can unlock significant returns. The bear market of 2022 illustrates this well. After the downturn, leading growth stocks like Netflix, Tesla, Meta Platforms, and Nvidia (NASDAQ: NVDA) had lost over half their value, with the Nasdaq itself shedding a third of its total value. Meanwhile, Apple, Microsoft, Alphabet, and Amazon saw declines between 26.8% and 49.6%.

Those who purchased shares in any of these companies, even mid-way through the decline, enjoyed substantial returns in subsequent years. For instance, buying Netflix after a 25% drop or Meta after a 30% decline—despite their eventual plummet past 50%—would have yielded double the initial investment due to their post-decline recoveries.

The key takeaway here is clear: investing in strong companies at reasonable prices usually trumps attempting to secure shares of lesser firms at deep discounts.

Anticipated Earnings Adjustments

Every bear market presents unique challenges. In 2020, the pandemic caused swift declines for businesses heavily reliant on in-person services and travel, such as hotels and restaurants. Conversely, companies like Target and Nike, which operated primarily online, experienced record-high stock prices.

From 2023 to 2024, the Nasdaq soared 84.5% amid heightened interest in artificial intelligence (AI) and cloud computing, driving growth in major stocks including Nvidia, Apple, and Microsoft, whose market capitalizations exceeded $3 trillion each.

Despite the flourishing stock prices, many growth stock valuations appeared to be heightened as their share prices grew faster than their earnings. Nevertheless, as long as earnings continue to rise, such valuations can be sustained. Nvidia exemplifies this: its stock surged over 800% between early 2023 and late 2024, yet rapid earnings growth justified its price according to analysts’ consensus estimates.

However, tariffs are likely to impact near-term earnings expectations for global companies like Nvidia by increasing trade costs. Additionally, its primary customers—big tech firms like Microsoft, Alphabet, and Amazon—may reduce their spending.

In summary, this bear market stems from a clash of valuation concerns and significant economic risks. Improvements in these areas could serve as triggers for a recovery.

Preparation Strategies for Investors

If tariffs persist, the cascading effects may severely dampen near-term earnings forecasts. It would be prudent not to place excessive faith in prior guidance.

Throughout upcoming earnings reports, revisions or suspensions of forecasts could become commonplace, similar to what occurred during the pandemic, as companies recalibrate and adapt to the new economic landscape. Nevertheless, these tariffs could be temporary; a potential resolution might shorten the bear market’s lifespan.

Last week’s swift declines highlighted investor anxieties and underscored the unpredictability of trade tensions, their potential impacts on businesses and the labor market, and the risk of an economic recession.

During such uncertain times, focus on aspects within your control. Conducting portfolio reviews is one strategy to prepare for a prolonged bear market. Assessing your current holdings and their rationale can help filter out the noise of market volatility and evaluate whether your investment thesis remains intact or is under threat from evolving economic conditions.

For instance, while Nvidia may face decreased earnings, it continues to be a highly profitable entity with significant growth potential.

Nvidia is an excellent example of a company with high margins and a solid balance sheet. The long-term potential of artificial intelligence (AI) remains unchanged, which suggests optimism for Nvidia’s continued growth.

While Nvidia’s stock price may face pressure, its business fundamentals are robust. In contrast, companies that rely heavily on debt, have low profit margins, and display weak balance sheets are in a more precarious position.

Considerations for Long-term Investors

Having a long-term investment horizon and selecting stocks that align with your interests and risk tolerance is advisable. Investors looking to supplement their retirement income might think about stable, dividend-paying firms like Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG). Both companies have consistently paid and increased their dividends for over 60 years, possess exceptional supply chains, and are well-positioned to weather trade tariffs.

Year-to-date, Coca-Cola has seen a rise of 12.3%, while Procter & Gamble is down only 2.3%. This performance indicates that both stocks are resilient in an unpredictable market.

The Value of Time in Investing

Time is the most valuable resource during a bear market. An investment horizon spanning multiple decades makes the actual stock price less relevant compared to a business’s future growth potential. For those with shorter timeframes or who are approaching retirement, effective risk management becomes crucial.

While financial losses are never pleasant, bear markets can present unique buying opportunities and often do not last long. By managing emotions and holding shares in quality companies, investors can better endure market downturns.

Seize Potential Opportunities in the Market

If you’ve ever felt you missed out on some of the most successful stocks, there may be more opportunities on the horizon.

Occasionally, our team of analysts provides a “Double Down” Stock recommendation for companies they believe are primed for significant growth. If you think you’ve missed your investment chance, now could be an ideal time to buy before the tide turns. The returns tell a compelling story:

• Nvidia: Investing $1,000 when we doubled down in 2009 would now be worth $244,570!*
• Apple: A $1,000 investment following our 2008 recommendation would have grown to $35,715!*
• Netflix: If you invested $1,000 when we doubled down in 2004, you would have seen returns of $461,558!*

Currently, we’re issuing “Double Down” alerts for three outstanding companies, presenting a potentially lucrative opportunity that might not come again soon.

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*Stock Advisor returns as of April 5, 2025

John Mackey, former CEO of Whole Foods Market, is on The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, also serves on the board. Randi Zuckerberg, a former Facebook spokesperson and sister to Meta Platforms CEO Mark Zuckerberg, is the board as well. Daniel Foelber holds positions in Nike. The Motley Fool is invested in and recommends a range of companies including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nike, Nvidia, Target, and Tesla. The Motley Fool also recommends specific options for Microsoft. A disclosure policy is maintained by The Motley Fool.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.