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On Wednesday (December 11), the Nasdaq The index closed above 20,000 points for the first time. Of course, investors will probably be aware that US stocks have performed much better than on this side of the pond in 2024.
However, it is interesting to note that thanks to yesterday's gains, the index is close to being up 100% in two years. This is insane growth and I'm looking forward to digging deeper to see if the game can move forward.
Putting together the puzzle
First, let's dig into the numbers. On December 28, 2022, the index closed at 10,213 points. It currently stands at 20,034 points. Yesterday it gained 347 points, so if it were to repeat itself today, it would rise almost 100% from 2022.
To understand why this is so impressive, it is key to understand the composition of the Nasdaq Composite Index. It is an index that measures the performance of more than 3,000 listed securities, with special attention to technology stocks. It is market cap weighted, meaning larger companies have a greater impact on the movement of the index. It's no surprise that companies like it NVIDIA, Apple and microsoft They are some of the largest components.
From that understanding, I can understand why the index has produced such large gains. Over the past two years, technology has been the standout sector in the market. The rise of artificial intelligence (ai) has been a key theme for 2024, along with chip manufacturing and cloud computing. A lot of investor money has been invested in these stocks.
address from here
I think it is natural that at some point in the next few months there will be a likely correction in the Nasdaq. This is healthy and would allow investors to make some profits. The average price-earnings ratio of the index is 47.7. This is well above the benchmark figure of 10 I use for fair value. Therefore, the stretched value could scare some investors a bit in the short term.
However, after any potential pullback, I still see the long-term trend being bullish for some key members, which should act to push the overall index higher as well. For example, I have shares in tesla (NASDAQ:TSLA). The stock is up 79% last year.
Despite the increase, I think it has fundamental drivers that should help it grow in the coming years. This includes benefits from the new US president, who will likely defend domestic companies like Tesla against international rivals. Plans to ease corporate bureaucracy and deregulation should also help business.
Add to this the fact that the company is making key advances with autonomous driving and robotics. As Tesla continues to adapt to the future, I feel investors have more confidence to buy more.
Of course, Tesla faces much greater competition than ever in the electric vehicle (EV) space. This will make it more difficult to keep profit margins as high in the future.
So while I would be cautious about buying Nasdaq index trackers right now, I think any dip can be used to buy selective members of the index. For example, if Tesla stock went down, you would look to buy more.
