History Pointing to a Bullish Second Half for the Nasdaq-100

Much to the surprise of many market participants, including this author, the Nasdaq-100 (NDX) is up over 17% for 2024. There seems to be a lot of risk in the world and admittedly the strong NDX performance is attributed to a minority of NDX components. For instance, about a quarter of NDX stocks have outperformed the index this year. It may just fall upon the laggards to push NDX higher from this point further.

Over the past 23 years, NDX has been up by double digits ten times leading up to the Independence Day holiday. Remarkably, the index was higher each of those years from Independence Day through the end of the year. The table below shows the before and after performance for each year when NDX was up over 10% leading up to this week’s holiday.

Data Sources: Bloomberg & Author Calculations

The average NDX rise from Independence Day through the end of the year for the years on the table above is +13.78% with a range of only +0.51% (2012) to 29.10% (2009). It is admittedly difficult to expect a rise in the double digits through the end of this year, but if NDX rises 13.78% the index would finish at over 22,000. 

One direct method of speculating on the expectation that NDX will put of a strong second half is a bullish vertical spread. With NDX around 19820, a trader could purchase the NDX Dec 31^st 15000 Call for 5300.00 and sell the NDX Dec 31^st 22000 Call for 340.00 resulting in a net cost of 4960.00 and an end of year payoff shown below.

Data Sources: Bloomberg & Author Calculations

The maximum profit for this bull call spread occurs if NDX rises 11.0% from current levels. Referring to the performance table above, six of the ten instances of strong performance leading up to mid-year were followed by returns of over 11%. Also, two of those observations fell short by less than 1%. Like any trade, there is risk to this trade, with the worst-case scenario having the NDX below 15000, a drop of almost 25%, to end 2024 and a loss of 4960. Finally, this trade breaks even at 19960 or about 0.7% higher than where NDX was when this trade was priced. Recall, the worst performance was a rise of about 0.5%. 

As the saying goes, past performance is no guarantee of future results. However, based on recent history, a strong first half for NDX has been followed by a sold second half. Time will tell, but if you are bullish on stocks through the end of the year, NDX options expiring on New Year’s Eve are an excellent method of trading that outlook.