In an atypical transfer for the market, the Nasdaq-100 index already finds itself in correction territory simply 1.5 months into the brand new administration. Normally, optimism abounds throughout a president’s first 12 months in workplace. Nonetheless, that is truly a second Donald Trump administration, so possibly that is the distinction.
What is the one factor that is not totally different? The President’s penchant for tariffs. When mixed with Elon Musk’s DOGE crew decreasing authorities employment and the potential alienation of key buying and selling companions and allies, buyers have bought the market first whereas ready to ask questions later.
However simply how lengthy will the downturn final? Does it appear like the correction is nearing a backside, or is there extra ache forward?
This Nasdaq correction has been abrupt
The explanations for the tech sector correction aren’t simply associated to the Trump tariff risk. Even since final summer time, there was concern over the longevity of the AI growth. After two years of AI hypergrowth, some buyers could also be fearing a slowdown in AI spending if firms do not see a enough return on funding. And if the financial system goes right into a slowdown and even recession, returns on all that AI spending can be tougher to return by.
Add within the emergence of China’s DeepSeek AI mannequin, which raised questions over the necessity for all this infrastructure spending, and AI-powered expertise darlings have plummeted from latest lofty highs. As of the tip of buying and selling Monday, the Nasdaq-100 was down 12.6% from its latest all-time highs skilled just some weeks in the past in mid-February.
Is that this the start of the tip or the tip of the start?
The excellent news is that, if latest historical past is any information, the market may be nearing the tip of this correction.
Over the previous 10 years, there have solely been three Nasdaq pullbacks worse than this one — late 2018, the COVID-19 sell-off of 2020, and the inflation-driven sell-off of 2022.
QQQ Percent Off All-Time High knowledge by YCharts.
The context was a bit totally different for every of those three sell-offs. In 2018, inflation was rising barely, and the Federal Reserve was lifting charges off the zero-lower certain that had been the norm for a lot of the previous decade because the great financial crisis of 2008. As well as, like immediately, President Trump was waging a commerce struggle. The mix despatched tech shares right into a tailspin.
2020 was, clearly, the start of the Covid pandemic. Looking back, that proved to be an enormous shopping for alternative for the tech-heavy Nasdaq, because the Federal Reserve reduce rates of interest to zero, and the complete globe started to depend upon digital communications and digital devices greater than ever.
Nonetheless, 2022 noticed the rubber band snapping again the opposite means. Because the financial system reopened, inflation took off amid the massive fiscal stimulus and extreme provide constraints brought on by the pandemic. The consequence was the best inflation in 40 years, adopted by the fastest-ever rate of interest hikes in historical past.
How immediately’s sell-off is like and in contrast to these others
Though the circumstances of those previous sell-offs have been totally different, immediately’s sell-off bears some similarities with the pullbacks in 2018 and 2022, particularly 2018. As in 2018, President Trump is ushering in a brand new part of the commerce struggle with China, though the brand new wrinkle this time is that he is opening up a brand new entrance towards our allies and neighbors — Mexico and Canada.
Whereas extra duties on China might have been anticipated, it seems the Mexico and Canada tariffs are what’s actually roiling markets in the meanwhile. The three economies are fairly interlinked, so placing up 25% tariffs on a broad swathe of products may very well be extra disruptive than the commerce tensions again in 2018.
On the identical time, Elon Musk is shedding important numbers of federal employees beneath the Division of Authorities Effectivity (DOGE), which is inflicting fears of a development slowdown.
At first look, that might not be such a giant deal. There have been solely about 3 million employees within the federal authorities out of about 163 million whole U.S. employed employees as of February of 2025. That is lower than 2% of the overall workforce. And clearly, not all federal employees can be laid off.
Nonetheless, it is attainable that doing each tariffs and layoffs directly means personal sector companies might not be in a temper to soak up the newly unemployed federal employees into the workforce. That would result in decrease development, much less client spending, and lowered enterprise confidence, which has the potential to feed on itself.
As well as, there may very well be basic uneasiness over Trump’s fraying of U.S. alliances throughout the globe. Geopolitical dangers have been already excessive, and the President’s considerably antagonistic conduct towards U.S. buying and selling companions could also be including to the sense of dread.
Picture supply: Getty Pictures.
However there are causes to not panic
Now that the market has corrected considerably, what are a few of the methods this correction stabilizes and turns issues round?
A giant potential optimistic and key distinction between 2018 and 2022 is the place of the Federal Reserve. In case of a weakening financial system or larger unemployment, the Federal Reserve immediately has loads of room to chop rates of interest. In 2018, a part of the market’s worry was that the Federal Reserve was elevating rates of interest off zero for the primary time in a decade, whilst commerce tensions threatened development. And 2022 was clearly an rate of interest shock.
In distinction, immediately the Fed is within the midst of a reducing cycle, with the federal funds rate having been lowered from roughly 5.33% at its excessive final 12 months to 4.33% at the moment.
As well as, it does not but seem that the substitute intelligence (AI) build-out is slowing down anytime quickly. Latest earnings outcomes from Nvidia, Broadcom, Marvell, and Oracle have all seen sturdy steering by way of orders, bookings, and the multiyear AI development outlook over simply the previous few weeks.
Whereas growth stocks have borne the brunt of this sell-off, decrease rates of interest may additionally assist them discover a backside, even when the general financial system slows down.
Might this be a dot-com bubble bursting?
Skeptics may level out that I’ve solely in contrast the present sell-off with the previous 10 years and that immediately’s AI build-out has parallels with the dot-com growth, which obviously didn’t end well. In truth, after the dot-com bubble burst in 2000, the Nasdaq did not regain its former highs till 2015!
The massive query is, is the present pullback the beginning of one thing a lot worse, such because the crash of 2000 and the following 15 years?
That looks like a stretch. Within the dot-com growth, valuations have been a lot, a lot larger than they’re now, and the dot-com bubble had run for about seven years earlier than bursting. By way of AI, we’re actually nearly two years into the growth, and the market leaders have usually had the bottom-line earnings development to help their valuations. Whereas one would not essentially name these shares “low cost,” their multiples aren’t off-the-charts loopy, both.
Stick with your Silly plan
It is vitally laborious to time the market, which is inherently unpredictable within the quick time period. However so long as the financial system does not dip right into a dot-com-like bust or Nice Recession, it looks like the market has already discounted a possible development slowdown in a short time.
Nonetheless, the coverage actions of the administration are something however predictable, and there appears to be simply as sturdy a case for a powerful bounce-back as there may be for some additional draw back. The excessive uncertainty is why it is vital to stay to your Foolish investing plan, with an eye fixed on the long run and a diversified portfolio. Nonetheless, if this investor had to decide on to purchase or promote immediately, I might most likely select to purchase.
