What to expect after a Nasdaq correction

September 9, 2020, 2:31 PM UTC

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Tech investors who have enjoyed the most outsize returns over the past few months may now be starting to sweat it as the Nasdaq just posted a rapid three-day correction (down 10%) from its high last Wednesday.

Indeed, even as the tech-heavy index rallies on Wednesday, up nearly 2% in early morning trading, tech stocks have taken a massive beating in the markets over the past week as investors have sold out of increasingly expensive tech and so-called stay-at-home names, dragging down benchmarks like the Nasdaq.

But one chart may put investors’ minds somewhat at ease.

According to LPL Financial’s Ryan Detrick, the previous fastest corrections in the Nasdaq ended up resulting in “extremely” positive returns one year later (in all cases since 1980 save for 2000).

Delving into the numbers, following a correction, the 12-month returns for the Nasdaq were in the double digits. The exception: the near –59% slump a year after the 2000 correction. In the short term, investors historically saw a bit more of a mixed bag, with the average return slightly negative at –0.24% in the following month.

To be sure, nothing about 2020 is normal, and with the two fastest Nasdaq corrections in 2020 (six days in February and three days in September), investors will have to wait until next year to see if history will repeat itself this time.

But according to some strategists, the recent selloff may not necessarily be such a tough pill to swallow for investors. “I think it was time for some rebalancing and taking chips off the table,” Charlie Ripley, senior investment strategist for Allianz Investment Management, recently told Fortune. “By and large, it looks kind of like a healthy little correction here.”

Meanwhile, although the Nasdaq may post positive returns in the months to come based on its track record, other strategists are calling on investors to look in another direction altogether: “Most investors right now are very focused on the tech selloff, but their focus is misplaced,” Morgan Stanley Investment Management’s Andrew Slimmon argued in a note Wednesday. “They should be focused on cyclical stocks, including materials and industrials, which were not only up last week, but have been the best performing sectors over the last month.”

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