The Nasdaq Composite jumped to a record high this week after its biggest one-day gain in seven weeks, and historical data shows similar rallies have led to further gains rather than pullbacks. Edward Jones strategist Mona Mahajan points to the AI trade, a milder Federal Reserve stance, and rising GDP growth as reasons the rally could continue.
Investors tempted to wait for a dip before buying into the Nasdaq's record run may want to reconsider. Data compiled by Bespoke shows that sharp, high-volume rallies to new highs like this one have historically been followed by stronger-than-average returns, not reversals.
Nasdaq's 2.3% jump has a history of paying off
On Monday, the Nasdaq shot up 2.3% — its biggest one-day gain in seven weeks — to close at a record high. Based on data from Bespoke, stronger-than-average returns over multiple time periods tend to follow when the index jumps more than 2% to a new peak, with the Nasdaq historically climbing 3.7% one month after such a rally.
The index backed up that pattern on Tuesday, rising 0.5% to another record close, while the S&P 500 lagged with a fractional loss. Monday's record was the Nasdaq's 21st of 2026, but its first since early June, according to Dow Jones Market Data.
AI trade and a milder Fed stance support the outlook
Yet the rally isn't without skeptics. Some analysts point to a lack of participation in the broader market advance, and to the negative effect of rising interest rates on stocks, as reasons for caution.
Mona Mahajan, head of investment strategy at Edward Jones, said the AI trade behind the latest push higher in tech stocks will probably continue to have some legs through next year as spending on AI infrastructure continues. She added that the stock market stands to benefit from a broadening of the AI trade through productivity gains.
Mahajan also views the Federal Reserve's interest-rate hike this month as part of mid-cycle policy adjustments rather than an aggressive series of hikes — a dynamic that could ultimately support the market. She said stocks may keep climbing on the back of corporate-profit growth and economic expansion, with the Atlanta Fed's GDPNow tracker currently estimating 5.1% annualized growth for third-quarter real GDP, up from 1.5% growth in the second quarter.
Earnings season looms as the next test
Third-quarter earnings reports, due in the coming weeks, mark another potential catalyst. According to a note from Yardeni Research: "analysts raising their earnings expectations faster than stock prices have been rising" could prompt investors to rethink valuations for some of the bigger technology names, semiconductor stocks in particular.
Source: MarketWatch
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