Last Update: July 25th, 2021

Like the other major US equity indexes, the NASDAQ has found itself in the midst of a massive bull run over the past 12 months and it has left many asking just what can slow things down.

At the start of 2020, the NASDAQ was trading around 8,750 and even at those levels, many experts felt prices were at extremely high levels. As we know, 2020 changed dramatically thanks to COVID-19 and the NASDAQ was arguably one of the biggest beneficiaries.

By year’s end, the NASDAQ had surged to 12,888 representing a gain of nearly 50%. As 2021 has gotten underway, prices have continued to rise and the NASDAQ continues to make all-time highs, pushing as high as 15,000 in the month of July. 

While the 50% gains that we saw in 2020 might not happen again in 2021, the outlook for the NASDAQ and what the index represents remains very much bullish. The NASDAQ is of course a representation of the largest 100 non-financial companies listed on the NASDAQ stock exchange.

For the most part, this includes the largest companies in the world, that most people would be familiar with including Amazon, Facebook, Twitter, Google (Alphabet), Netflix, Apple and many others.

For the time being, the momentum is very much to the upside and the price action is also underpinned by strong fundamental performance. These large tech companies have seen strong earnings growth and also a considerable increase in market share over the past 12 months which suggests the NASDAQ price prediction is a bullish one.

Price is currently trying to reset its all-time high level and break above the 15,000 level. All equity markets are incredibly bullish at the moment, however, we do need to be cautious of a bearish correction should price drop through the current uptrend.

Recent Changes in the NASDAQ Price

The outlook continues to be very positive for the tech sector, however, we should note that the gains that we’ve seen over the past 12 months are unlikely to be repeated.

Traditionally stocks move in bursts, where we have one strong year, followed by a number of years with lower levels of growth. We should also point out that the NASDAQ did fall 30% on the back of the COVID-19 saga and the ensuing lockdowns across the US. 

The five-year NASDAQ price prediction will no doubt see growth, it might not be as large as we’ve seen in 2020 and the early stages of 2021. However, over the next 3-5 years, it’s fair to suggest that the NASDAQ should close in on 20,000.

NASDAQ – Boosting Online Businesses During Coronavirus

The largest companies in the US, of which many are a part of the NASDAQ 100, saw extreme price growth in 2020 thanks predominately to COVID-19.

While there is a clear shift towards online, especially in the area of retail sales, the move away from traditional bricks and mortar operations saw a huge forced change. With many bricks and mortar retailers being forced to close their doors, consumers were forced to spend more online and this was a huge boom for some of the biggest names on the NASDAQ, in particular, Amazon.

Similarly, with people stuck at home, people turned to the likes of Netflix in droves as well as social media platforms like Facebook and Twitter.

This dramatic change in the way many were forced to live their life, saw huge growth in the large tech companies which was clearly the driving force behind the huge increase in stock prices and the broader NASDAQ index.

As mentioned, this won’t likely be repeated in 2021 and in fact, we should start to see this slow down over the course of the next 6-12 months as many states in the US go back to normal with restrictions being removed.

Unfortunately, for many bricks and mortar retailers, there will be no going back to normal as thousands were forced to shut their doors, which only strengthened the market share and overall dominance of the likes of Amazon and other tech names such as Shopify.

NASDAQ – Inflation Effect and Central Bank Stimulus

One of the other key drivers for the NASDAQ and also the other major indices have been the role of central banks and the huge amounts of stimulus that is flooding the world currently.

When COVID-19 hit, the first thing central banks did was aggressively cut interest rates to levels not seen before. This has had a number of impacts on the way in which investors operate and it has been a huge boom for stocks and the NASDAQ in particular.

The first element is low interest rates and what this means for people looking to invest. Low interest rates effectively mean that bond yields and the interest you can earn on your money in the bank are greatly reduced. For investors, leaving your money in the bank is a losing proposition and it forced many to look for other alternatives. The most obvious answer was always going to be the stock market and in particular, the one that was most likely to benefit from COVID which is of course the NASDAQ.

At the same time, they cut rates, Central Banks and the US Federal Reserve in particular set out to boost the level of bond buying (QE). This has two impacts. First, it pushes interest rates lower as the FOMC is effectively propping up bond prices, but it also adds huge amounts of money to the economy. In the short term, this might be good, but it also devalues the currency of the country that is buying bonds. Central Banks print money to buy back bonds so this is simply them printing money by another name.

Printing money as we know causes inflation. If the true level of inflation was measured, not through the current methods that are undertaken by the BLS, I suspect we would see inflation sitting at around 5-7% per year. That means you need to have your money sitting in an investment that makes high returns simply to not lose ground.

Smart investors and certainly institutions understand this and have been quick to move their spare funds into stocks – namely the NASDAQ. For the time being, the level of bond buying from central banks and low interest rates are expected to stay this way for the foreseeable future and as such, we should expect to see money continue to flow towards stocks.

NASDAQ Downside Risk – Regulation

While things have been good for stock markets recently and the NASDAQ in particular, there is one key risk that looms large for a number of the big companies that have the most impact on the NASDAQ 100 index. That is regulation and the fallout from COVID-19. 

During the Presidential Election, a number of tech companies have made it very clear that they will enforce their own guidelines and policies and limit free speech. President Donald Trump made it known he was pushing to change the way large tech companies operate and the protections they are afforded. There is a real chance that we see some form of regulation that will impact many of the large tech companies in the coming months and that will adversely affect the likes of Twitter, Google and Facebook and others through new libel laws and the removal of section 203 that protects these companies.

Similarly, the increase in market share of the likes of Amazon is also a very politically charged topic at the moment given that they were the ones profiting as many small businesses folded during COVID.

NASDAQ 100 – 4-hr Chart

As it stands, the NASDAQ 100 continues to make new highs and the NASDAQ price prediction targets will be focused mostly on the key round number levels.

Price has recently touched the 15,000 price level and the next clear price target will be 16,000. From there we will be looking at moves into the 20,000 level over the coming years.

To the downside, we can look at the most recent swing lows on the daily chart to understand when the uptrend ends. At the moment, the most recent low is sitting at 14,300. A break below that would open up price for a move towards the next swing low at 11,000.

Interestingly, there was a lot of volume that traded at the 11,000 level over the period from July 2020 to November 2020 and as a result, I suspect that will be the major level that price gets drawn towards on a downside correction. 

A move to 11,000 would also represent a fall of approximately 20% from the current price and this would also put it on the verge of a bear market under the technical definition. 

Looking ahead, I would expect to see the NASDAQ price prediction to be focused on a rise to the key 20,000 level representing a 40% gain in a 3-5 year period. However, I do think we could see some volatility and a pullback in price in the second half of 2021, which could be a very good buying opportunity for not only the NASDAQ but stocks in general.