
Record Nasdaq Outperformance Is Usually a Sign of Good Things to Come
There has been a lot of coverage about the strong absolute and relative performance of the Nasdaq-100 in 2023, and with it are concerns surrounding the poor breadth in the broader marketplace. While strong equity performance has indeed been narrow through the first five months of 2023, it, more often than not, is constructive. Looking back at the top outperformance years by the Nasdaq-100 versus the major U.S. equity benchmarks shows “the rising tide lifts all boats” adage proves to be the outcome more times than not.
Through the first five months of 2023, the NDX had a total return of 30.8%, marking its third best start in a calendar year since its inception in 1986. This year’s performance by the NDX is even more impressive relative to the other major equity benchmarks. Whether compared to the large-cap Dow Jones Industrial Average (INDU) and S&P 500 (SPX) indices or even the small-cap Russell 2000 index, the NDX is outperforming all three benchmarks at a record pace. Over the first five months of 2023, the NDX outperformed both the Dow Jones and Russell 2000 by more than 30 percentage points and the S&P 500 by more than 21 percentage points.
The good news is that a strong start by the NDX over the first five months has most often translated into strong performance over the remaining seven months of the year for the other major U.S. equity benchmarks, not just the Nasdaq-100. Looking at the prior ten record years of peak outperformance by the Nasdaq-100 versus the Dow Jones, the ensuing seven months in each of those years have seen the following performance highlights for each index:
- Nasdaq-100: Higher 9/10 years for an average return of 17.1%
- Dow Jones: Higher 8/10 years for an average return of 10.3%
- S&P 500: Higher 9/10 years for an average return of 10.2%
- Russell 2000: Higher 8/10 years for an average return of 8%
Note: The prior top four record outperformance by the Nasdaq-100 versus the Dow Jones Industrial Average (May-91; May-09; May-20; May-03) occurred during the early stages of new bull markets.

On Monday, June 11, Bespoke put out a note Lucky Seven for the Nasdaq highlighting the current 7-week streak of gains in the broader Nasdaq Composite, which is the 7th occurrence since the Financial Crisis lows of 2009 and concluded, “While there were two periods (2010 and 2012) where the Nasdaq clearly experienced a moderate pullback fairly quickly after its seventh positive week, following the others, it doesn’t appear as though the rally was tripped up at all.”
So far in June, we are seeing early signs of improving breadth amongst both the broad equity indices as well as the Level I sector equity indices. The broad indices are being led by the small and mid-cap benchmarks: Russell Microcap Index +9%; Russell 2000 +8%; S&P MidCap 400 +8%; while the sector levels have seen leadership rotate from Growth into the cyclicals: Discretionary +9%; Materials +9%; Industrials +8%; Financials +6%, and Energy +5%.
Within the Financials sector, the Nasdaq ABA Community Bank Index is +15% MTD; KRX Index+14%; S&P 500 Consumer Finance Index +12% S&P 500 Asset Mgmt. & Custody +12%; and the S&P 500 Insurance +5%
The S&P Regional Bank ETF (KRE) is +2.1% WTD marking its 5th consecutive week in the green. This week’s positive gains come despite a number of leading banks issuing negative fundamental guidance (i.e., deposit costs/margins, tightening credit, and rising reserves) at the Morgan Stanley Financials Conference. While those banks that issued negative guidance saw declines around 5%, their pullbacks were relatively modest compared to the rebound off the May lows while holding within their recent uptrends. After three straight days of relatively modest consolidating price action, the KRE could already be resuming its prior five-week uptrend. However, Chair Powell’s comments at today’s FOMC could be the make-or-break catalyst over the near term.
Improving Breadth:
As the broad S&P 500 is this week breaking out to fresh 16-month highs, its Advance-Decline Line-ADL (breadth indicator measuring advancing vs. declining stocks; lower panel) is close to making new all-time highs.
S&P 500, daily period (ADL in lower panel)

The S&P 500 equal weight Index is making new highs for the quarter and is less than 4% from the 52-week highs at the ~6,210 level.
SPW (weekly period)

The Dow Jones Industrial Average is less than 2% from breaking out to fresh 52-week highs and within 7% from all-time highs. The 34,300 – 35,000 range was a pivot top made in August 2022 before the index resumed its downtrend and bottomed last September. It has since retested this now clearly defined resistance range on numerous occasions since November, nearly seven months. The rising trendline of higher lows is converging closely towards the clearly defined resistance, which technicians refer to as coiling price action where strength is brewing. An upside breakout above resistance could unleash pent-up momentum for this index.
INDU (weekly period)

While the underperforming sectors of the market have a lot to prove in an environment with so many uncertainties surrounding economic growth, corporate earnings, rates, regulations, etc., there are early signs so far in June that breadth is improving. The robust start to the year most visible in the Nasdaq-100 is historically not a bearish omen; rather, it is more often a constructive “canary in the coal mine” signal for the broader U.S. equity benchmarks over the remaining seven months of the calendar year and then some.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.