The Nasdaq is in correction territory. Is the ASX 200 next?

Is the ASX 200 headed for a correction?

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A bright graphic showing neon green and red arrows in a downwards direction with a world map behind them in neon blue

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Key points

  • The ASX 200 has had a rough month or so
  • But the US Nasdaq Index has fared even worse, falling by 14.25% from its most recent high
  • A ‘correction’ is normally defined as a 10% fall from the last high
  • So is the ASX 200 next up for a correction?

As most of us would be painfully aware of right now, the past few months have not been kind to ASX shares. The S&P/ASX 200 Index (ASX: XJO) has not done much to dispel those concerns so far today. Starting the week off on exactly the wrong foot, the ASX 200 has given up another 0.51% so far today, and is currently sitting at 7,139 points at the time of writing.

That means the ASX 200 is now down around 6.5% from its last all-time high of 7,632.8 points that we saw way back in August last year.

Now that might sound rather depressing for most ASX investors. But consider this. Over in the United States, the tech-heavy Nasdaq Composite Index last closed at 13,768.9 points. That’s a painful 14.25% below its last all-time high of 16,212.2 points that we saw only back on 19 November.

By conventional investing wisdom, a fall of 10% or more from the most recent high is technically a correction. So as such, the Nasdaq Index is now firmly in correction territory. This is also the nastiest pullback for the Nasdaq since the infamous initial COVID crash of 2020.

So the Nasdaq is in correction. Is the ASX 200 next?

What does the Nasdaq correction bode for the ASX 200?

Well, it’s not that simple. The Nasdaq is just one of the US’s major sharemarkets, and in itself is not representational of the entire US market. The Nasdaq is home to mainly tech companies, with none of the ‘older-style’ blue-chips of the New York Stock Exchange present.

Its largest share are exclusively the US tech giants: Apple Inc (NASDAQ: AAPL)Microsoft Corporation (NASDAQ: MSFT)Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL)Amazon.com Inc (NASDAQ: AMZN)Meta Platforms Inc (NASDAQ: FB) and Tesla Inc (NASDAQ: TSLA). Other significant holdings include Adobe Inc (NASDAQ: ADBE)Netflix Inc (NASDAQ: NFLX) and PayPal Holdings Inc (NASDAQ: PYPL).

Perhaps a more representative index for the US markets would be the S&P 500 Index (INDEXSP: .INX). This index holds 500 of the US’s largest companies drawn from both the Nasdaq and the NYSE. So in addition to the names listed above, you’ll also find NYSE-listed companies like Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B), JPMorgan Chase & Co. (NYSE: JPM) and Johnson & Johnson (NYSE: JNJ) amongst its top holdings.

So just to be clear, the S&P 500 hasn’t had a great time of it recently either. But since its last peak in early January, the S&P 500 is down by around 8.3% on the latest pricing. That’s not nearly as bad as the Nasdaq’s 14.25%, and doesn’t yet qualify for that scary ‘correction’ label.

But as they say, where the US markets go, the world follows. So if the US markets continue to downtrend, it’s well possible that the ASX 200 will follow suit. No doubt there are more than a few investors out there with fingers crossed that we’ll see a bottom soon. But only time will tell.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen owns Alphabet (A shares), JPMorgan Chase, Johnson & Johnson, Meta Platforms, Inc., and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Meta Platforms, Inc., and Microsoft. The Motley Fool Australia has recommended Adobe Inc., Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., Netflix, and PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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