The Nasdaq-100 Had Its Worst Week in 18 Months. History Says the Following Year Has Usually Been Strong.

In the week ending October 16, the Nasdaq-100 index experienced its most significant decline in 18 months, plummeting approximately 5.5%. This decline was mirrored by the Invesco QQQ Trust (QQQ), which tracks the index, dropping around the same percentage. This marked the index's worst week since April 4, 2025, when it lost nearly 10%.

Chip stocks, along with those related to artificial intelligence (AI), bore the brunt of the damage. The VanEck Semiconductor ETF recorded its largest weekly drop since April 2025, falling around 10% during that week. Other tech-linked stocks also experienced declines.

Investors were concerned about the increasing borrowing by tech firms to fund AI-related capital spending, coupled with higher-than-anticipated inflation figures and oil prices exceeding $100 per barrel, which further exacerbated the market pressure. To assess the impact of such downturns, a review of QQQ's performance in the following year was conducted, starting from 1999 when the fund's daily prices were available.

Out of the 26 weeks since 2010 where QQQ experienced a loss of 4% or more within a 30-day period, the fund had ended the subsequent year higher in 25 instances, with an average gain of around 22%, before accounting for dividends. The most recent occurrence, the week ending April 4, 2025, saw QQQ bounce back with a gain of approximately 38% in the following year. Notably, in February 2020, during the onset of the COVID-19 pandemic, QQQ faced a 11% weekly decline but rebounded with a 53% increase in the subsequent year.

However, not all weeks have been followed by a positive outcome. Since 2010, 47 out of 71 weeks with a subsequent year's result saw QQQ end higher, amounting to about two-thirds of the cases. The majority of these losses occurred during the dot-com bust from January 2000 through mid-2002, when QQQ did not see a gain after any of the 18 qualifying weeks.

Other significant downturns followed by declines included the 2007-2008 financial crisis and the year 2022, when QQQ dropped around 4.5% in early January 2022, with a subsequent year's loss of around 29%.

Despite these setbacks, since 2010, QQQ has ended up higher in about nine out of ten cases after a bad week, with a median gain of around 21%. This pattern indicates that while one bad week can be unsettling, it has historically been followed by a relatively ordinary year for the fund, which has, overall, been a good performer since 2010.

The only notable exception was in early 2022, when QQQ experienced a 4.5% decline in a single week, leading to a 29% drop the next year due to rising interest rates. In conclusion, while a single bad week can be disconcerting, it has, historically, not necessarily indicated a prolonged bear market.