After recording a fall of more than 25% in 2022, the stock market staged a massive comeback in 2023, and historical patterns indicate that there is further potential for growth. The S&P 500 came close to reaching its all-time high. Once it does surpass that previous peak, coupled with a rise of over 20% from its recent low, it will signal the commencement of the next bull market.

Why is this important? Well, since 1957, bull markets have typically endured for nearly five years, providing investors with an average return of slightly over 169%. Looking back to the inception of the Nasdaq Composite in 1972, historical data demonstrates that in each year following a market recovery, this technology-focused index has returned an average annual gain of 19%, per Motley Fool, as quoted on Yahoo Finance.

While the economy remains unpredictable, there is the possibility of further challenges before improvements materialize. However, historical data implies that investors can anticipate a promising year ahead.

Inside Nasdaq’s Potential Rally?

The technology sector accounts for more than 55% of the index with 457 constituents. Consumer Discretionary comes second with 18.75% exposure and 458 stocks. Health Care takes about 7.87% of the index with 1044 stocks, followed by industrials which occupies 4.65% of the index (with 351 stocks).         

The index Nasdaq Composite has surged about 40% last year mainly buoyed by the tech rally, which was led by a massive thrust toward artificial intelligence (AI), especially generative AI. The rapid penetration of digitization during the lockdown, ushered in significant adoption of AI.

Moreover, a resilient consumer base has boosted the consumer stocks too in 2023, helping to send the index to a great height. We expect the index to log gains even in 2024, although the quantum of gains will likely be less than this year.

Factors That Should Boost Nasdaq in 2024

Below we highlight several factors that should boost the Nasdaq in 2024.

A Less-Hawkish or Dovish Fed in 2024

The latest datapoints indicate that inflation is on the decline. This may cause a less-hawkish Fed in the near term. There is now chance of 75 bps rate cut in 2024. Since the Nasdaq is a growth index and fares better in a low-rate environment, the index has every reason to hit further highs. Moreover, with the Fed being less-hawkish, the participation in the stock market is broadening out, which is a key tailwind for the sustenance of bull market.

AI Boom Here to Stay

The year 2023 was crucial in the AI industry, characterized by dynamic company moves, groundbreaking initiatives, major product launches, substantial investments and strategic acquisitions. And a wider spread of AI among consumers is expected next year. Bob O’Donnell, president of TECHnalysis, believes 2024 will be pivotal for AI, integrating it into daily tools like PCs, smartphones and multimedia platforms, as quoted in a Yahoo Finance article.

Companies like Google, Microsoft and Amazon introduced significant updates to their AI services, lately. The year 2024 is likely to witness the launch of AI-equipped PCs and other devices, moving some cloud-based AI processes to local devices.

Biotech Stocks to Rebound in 2024?

The Nasdaq has solid exposure to the biotech space. Biotech stocks have staged a rebound lately and are being lifted by M&A activities. Novel drug launches, low rates and easy access to funds should buoy the zone in 2024.

ETF Picks

We highlight a few ETFs related to the Nasdaq that have decent upside left for 2024. These include Zacks Rank #2 (Buy) Invesco Nasdaq 100 ETF (QQQM Quick QuoteQQQM - Free Report) , Zacks Rank #2 Invesco QQQ (QQQ Quick QuoteQQQ - Free Report) , Zacks Rank #2 Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE Quick QuoteQQQE - Free Report) , Zacks Rank #2 First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW Quick QuoteQQEW - Free Report) and Zacks Rank #2 Fidelity Nasdaq Composite Index ETF (ONEQ Quick QuoteONEQ - Free Report) .