The Nasdaq Composite is a stock market index that measures the performance of over 3,600 companies, many of which fall into the technology and consumer discretionary sectors. In fact, tech companies alone account for 48% of the index's weight, and because tech is often synonymous with growth, the Nasdaq Composite is essentially a benchmark for growth stocks.

That quality has been a blessing and a curse. Growth stocks often perform very well during periods of economic expansion, but they usually perform very poorly during periods of contraction. That happens because growth stocks are valued on future revenue and earnings potential, and that potential is heightened during periods of prosperity but reduced during periods of economic hardship.

Investors learned that lesson the hard way last year. The Nasdaq Composite plunged 33% in 2022 as red-hot inflation and rising interest rates threatened to tip the economy into a recession. The index has only suffered a sharper decline on three occasions since it was created in 1971.

Continue reading

Source Fool.com