The Nasdaq just did something it has only done five times before.According to history, large fluctuations in stock prices are possible in 2024.

of Nasdaq Composite (^IXIC 1.70%) is an index of approximately 3,500 stocks, many from the technology and consumer discretionary sectors. As such, the Nasdaq is often considered a benchmark for growth stocks, as many of its components are on the cutting edge of various technology and consumer trends such as artificial intelligence, cloud computing, cybersecurity, and e-commerce.

Investors have turned away from growth stocks as post-pandemic inflation scorches the economy. The Nasdaq fell deep into bear market territory in 2022, dropping 36% from its peak.

This drawdown was primarily caused by recession fears arising from aggressive monetary policy. Specifically, the Fed has fought inflation by raising its benchmark interest rate at the fastest pace since the 1980s. Many economists were (and some continue to be) concerned that policy makers could trigger a recession by tightening credit conditions too quickly.

But the Nasdaq shrugged off those concerns and rose last year as signs of economic resilience and excitement about artificial intelligence improved market sentiment. In 2023, the index rose 43.4%, its best performance ever. Prior to that, the Nasdaq had gained more than 40% annually just five times since its creation in 1971.

Historically, annual gains above 40% have portended further upward momentum for the Nasdaq. Of course, investors should not place undue weight on such forecasts simply because each situation is unique. While the past few years have been defined by the aftermath of a global pandemic, events like this are unprecedented. Still, historical patterns are still worth considering. Here’s what investors need to know.

History says Nasdaq could rise in 2024

The Nasdaq Composite Index returned 43.4% in 2023, marking the sixth time the index has risen more than 40% in a calendar year. The chart below shows the past five events and details the Nasdaq’s return after 12 months.

Data source: YCharts.

As shown above, the Nasdaq is up more than 40% annually, with a median 12-month return of 15.5%. To add context, the Nasdaq is down about 0.5 percentage point this year, so the implied upside through the remainder of 2024 is about 16%.

Investors should consider this number to be just a guess. The combination of a global pandemic, the highest inflation in 40 years, and aggressive interest rate hikes makes the current situation unique. As a result, the NASDAQ may not perform as historical data suggests. But there is another pattern that may be of interest to investors.

Fed may end rate hikes

The Fed has signaled that its interest rate hike campaign may be coming to an end. In fact, policymakers’ latest forecasts suggest three 25 basis point rate cuts in 2024. Futures investors are even more optimistic.of CME Group‘s Fed Watch tool (which uses futures contract price data to estimate the probability of future rate hikes and cuts) currently shows a 70% chance of at least six 25 basis point rate cuts in 2024. .

If credit conditions do ease next year, changes in monetary policy will encourage businesses and consumers to borrow and spend. This, in turn, should lead to strong economic expansion and strong growth in corporate earnings and profits. The Nasdaq has historically rallied strongly after interest rate hike cycles as investors get excited about the prospect.

To elaborate, the Federal Reserve has steered the economy through six interest rate hike cycles since 1983. The Nasdaq’s median 12-month return after the last rate hike in those cycles was 20%. For context, the Fed last raised its benchmark interest rate on July 27, and the Nasdaq is up 6% since then. This gives a potential upside of around 14% through July 2024.

Of course, this assumes the Fed actually finishes raising interest rates. However, the results are not guaranteed. Indeed, with inflation reaccelerating from 3.1% in November to 3.4% in December, policymakers may ultimately decide to tighten credit conditions further.

Patience is the key to making money in the stock market

Investors should avoid strategies based on market timing. Even the smartest economists and Wall Street strategists don’t know what will happen in the year ahead. Some experts are predicting the worst collapse in decades, while others see only a small risk of recession. But if you think long-term, these concerns become less pressing.

The Nasdaq fell 56% during the Great Recession bear market and took more than three years to regain its all-time high. However, the Nasdaq is still up 424% since the start of the drawdown. In other words, investors who bought the Nasdaq Composite Index Fund on the day the bear market began still saw an annualized return of 10.8% over the past 16 years.

The lesson here is simple. Patience is the key to making money in the stock market. Investors buying individual stocks should pay close attention to growth prospects and valuations, and carefully research each company before buying its shares.

Companies ready to benefit from artificial intelligence are in a good place to start. This also includes software vendors such as: microsoft (NASDAQ: MSFT) and data dog (NASDAQ:DDOG)cloud service providers such as: Amazon (NASDAQ:AMZN) and alphabet (NASDAQ:Google) (NASDAQ:GOOG)and chip manufacturers like Nvidia (NASDAQ:NVDA) and broadcom (NASDAQ:AVGO). These companies are members of the Nasdaq Composite Index, and all but Datadog are ranked among its 10 largest components.

Alternatively, investors can save effort by using index fund strategies instead of or in addition to individual stocks.Something like the Nasdaq Composite Index Fund. Fidelity Nasdaq Composite ETF (NASDAQ:ONEQ) It will leverage Nasdaq’s profits directly. Investors should also consider S&P 500 index funds such as: Vanguard S&P 500 ETF (NYSEMKT: VOO). Warren Buffett often recommends that strategy. But no matter the strategy, patience is the key to making money.