Historically, the first three trading days of the year have been positive for the NASDAQ with gains more than two-thirds of the time (68.6%). This year has been a different story, though, as the Nasdaq fell 3.4% in the first three days; the fifth-worst 3-day start to a year in the NASDAQ’s history. The only years with a weaker 3-day start were 2000, 2005, 2008, and 2016.
The table below lists the five prior years where the NASDAQ started the year with a decline of 3% or more in the first three trading days. For each year, we also show the index’s performance for the remainder of January as well as the remainder of the year. In the case of these five years, first impressions have been a pretty good indicator of future performance as the NASDAQ’s performance for the remainder of January and the rest of the year was weaker than average. While the range of returns is extremely wide, the average return for the rest of January was a decline of 1.6% (median -1.4%), and the rest of the year averaged a decline of 9.5% (median +5.5%). We’d also note that the two worst three-day starts to a year for the NASDAQ (2000 and 2008) also experienced the two worst rest of year returns for the Nasdaq in its history.
Although the fact that two of the worst years in the NASDAQ’s history were also years where the index dropped more than 3% in the first three trading days of the year, by itself, investors should not take this year’s occurrence as an overly bearish sign. Throughout the index’s history, there has been very little correlation between how it traded in the first three trading days and its rest of year return, and the r-squared between the two is just 0.0132.
While any association with 2000 and 2008 is always scary, in every other year that the NASDAQ traded lower in the first three trading days of the year, its rest of year performance was positive every time. In fact, during the 15 years when the first three days were negative, the average rest of year performance was a gain of 15.7% (median: 15.13%) with positive returns 87% of the time. Meanwhile, in the 35 years where it traded higher in the first three trading days of the year, the average rest of year return was a gain of 10.92% (median: 13.22%) with positive returns 69% of the time. Click here to view Bespoke’s premium membership options.