"Turn out the lights. The party's over."
Those lyrics from an old Willie Nelson song could be what many investors are thinking these days. The Nasdaq Composite Index (^IXIC 12.16%) is in correction, in large part over worries about the potential impact of President Trump's trade policies.
But the party might not be over for too long. How long will the Nasdaq correction last? Here's what history shows.
Image source: Getty Images.
Recent Nasdaq corrections
It's important to understand just how frequently the Nasdaq enters correction territory (which is defined as a decline of between 10% and 20% from the previous peak). Over the last 10 years, the widely followed index has fallen by at least 10% from its previous high six times including the current correction. That's an average of one Nasdaq correction every 1.67 years.
As the chart above shows, most of these recent Nasdaq corrections have been relatively short-lived. For example, the Nasdaq slid more than 10% in July and August of 2024 but quickly rebounded. The index ended the year up nearly 29%.
Several other Nasdaq corrections in the past 10 years also didn't go on for too long. In mid-2019, the Nasdaq fell by more than 10% then immediately reversed course. It was fully back on track by early July.
However, not every correction is quite as brief. In late 2021, the Nasdaq began a sharp decline that began as a correction but soon became a full-blown bear market. It didn't regain all of the losses until more than two years later.
Looking further into the past
What if we look further into the past? There's good news and there's bad news.
Some previous Nasdaq corrections ended quickly. During the 1990s, the Nasdaq retreated by 10% or more a dozen times. In every case, the index didn't stay down very long.
However, it was a much different story when the dot-com bubble burst in 2000. The Nasdaq plunged into its worst bear market ever without much time in correction territory. The index ultimately lost as much as 77% of its value. The bear market lasted for years. The Nasdaq didn't recapture its previous high until 2015.
What about the current Nasdaq correction?
Historically, Nasdaq corrections are usually measured in months rather than years. As we have seen, though, there are outliers that are much worse. Is the current Nasdaq correction more like the typical short-lived correction or the horrendous decline that began roughly 25 years ago? I suspect the former rather than the latter.
Sure, some think the current artificial intelligence (AI) boom is reminiscent of the dot-com bubble. Having lived through the heady dot-com days, though, I don't see the AI hype as nearly as overdone as the internet hype was back then. I also believe AI technology is advancing much more rapidly than internet technology did in the 1990s.
What about the potential impact of President Trump's tariffs? They could hurt many companies that list their shares on the Nasdaq. But it remains to be seen exactly which tariffs will be implemented, how severe they'll be, and how long they'll last.
Take the long view
Maybe I'm right that the current Nasdaq correction will only last a few months; maybe I'm wrong. Either way, investors who take the long view should win. The chart below underscores the reason behind my optimism.
The Nasdaq Composite Index is heavily weighted with the stocks of highly innovative companies that are changing our world. I fully expect amazing technological advances from these companies over the next decade and beyond, perhaps artificial general intelligence (AGI) or quantum computing breakthroughs.
No one knows how long the Nasdaq correction will last. However, it's easy to see how many of the companies that make up the Nasdaq Composite Index are working to add shareholder value. I see the current pullback as a fantastic buying opportunity for long-term investors.
