- The Nasdaq has outperformed the S&P 500 to start the year by a significant margin.
- But historical data cited by DataTrek Research suggests the tech sector could slip soon.
- When the Nasdaq beats the S&P 500 by 5 points or more over 50 days, underperformance has followed.
The Nasdaq has more than doubled the gains of the S&P 500 to start the year, but a key historical pattern suggests there’s reason to be cautious on the tech-heavy index moving forward, according to DataTrek Research.
In 2023, the Nasdaq is up roughly 10.6%, while the S&P 500 is up about 4%. The outperformance comes despite still-rising interest rates and messaging from the Federal Reserve that even tighter monetary policy is on the way.
The Nasdaq could just be catching up after it bottomed later than the S&P 500 last year, DataTrek co-founders Nicholas Colas and Jessica Rabe point out in a Thursday note. Tech sector layoffs also may be improving the earnings outlook for those stocks.
Since 2010, the Nasdaq has beaten the S&P 500 by an average of 0.6 percentage points over any 50-day period, they said.
In that span, there have been 12 instances where the Nasdaq has outperformed by 5 percentage points or more. In every instance, the Nasdaq then went on to underperform the S&P 500, they said.
It’s possible, Colas and Rabe said, that markets become more convinced that the economy can skirt a recession, which would allow stocks to rally further.
But if investors realize that a downturn is indeed going to hit, it’s possible to see cash begin to flow out of cyclical stocks and into high-quality growth names.
“Our data-driven approach tells us to be cautious on NASDAQ/US Large Cap Tech here. They’ve had a great relative run versus the S&P 500, “but +12 years of market history says it is time to be more cautious,” DataTrek said.