As of 10 AM this morning, the Nasdaq has shed over 10% in January, which would mark the first full-month decline of over 10% since March of 2020. Before the COVID-induced crash, the Nasdaq had not lost 10% in a calendar month since November of 2008. When the dot-com bubble popped at the beginning of the 21st century, 8 months saw declines of more than 10%.

Short-term forward performance has been relatively mixed following prior 10%+ monthly drops for the Nasdaq. On the first day of the following month, the Nasdaq has averaged a gain of 10 basis points with positive returns 54% of the time. The first week of the next month has seen the index average a gain 10 basis points as well with positive returns 54% of the time, while the next month has seen an average gain of 50 basis points with positive returns 50% of the time.

Looking further at next-month returns, the maximum upside seen since the index was created after one of these occurrences was +17.2% (Oct. 1974) and the maximum downside was -17.7% (Oct. 2008). The average absolute change for the next month is 10.7%, which is significantly above the average for all periods (+/-4.6%). Just like much of the research we have published over the last few weeks has found, this data suggests that more volatility should be expected in February.

Looking at the most recent 10%+ monthly drop in March 2020, the Nasdaq started April 2020 with a huge decline of 4.4% (on April Fool’s Day), but by the end of the month, the index was up 15% MTD.  Prior to March 2020, the Nasdaq amazingly had back-to-back-to-back 10%+ monthly declines in September, October, and November 2008. Stay on top of market trends by becoming a Bespoke subscriber today.  Click here to view Bespoke’s premium membership options.

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