What the Nasdaq-100 Can Tell Us About the Economy

Articles From: Nasdaq
Website: Nasdaq


Head of Index Options Content


Stock market indexes are not the economy, and vice versa. My colleagues covered the topic last summer, asserting that the key distinctions are primarily a matter of size and measurement periods. However, most investors view the performance of benchmarks like the Nasdaq-100 Index (NDX) as a forward-looking reflection of economic activity. 

The team at JP Morgan Wealth Management echoes these sentiments, pointing out that “the stock market almost always bottoms well before a recession is over, and sometimes before we even know that we’re in a recession,” adding, “equity markets are publicly traded 252 days a year. They are the best forward-looking mechanism for economic growth and earnings. GDP, by definition, is a backward-looking growth number.”

So, what (if anything) is the NDX telling us about the economic forecast?

At a cursory glance, the NDX makes it look like the worst is behind us. An optimist would point out that the NDX has rallied nearly 23% off the lows. A pessimist might argue that the index is essentially measuring where it was in early 2021. They would both be correct. 

However, in early 2021, the cost of money was substantially lower than it is today. The Fed Funds rate in January 2021 was nine basis points (or 0.09%); it’s currently 508 basis points (or 5.08%). Put another way, average 30-year mortgage rates have moved from 2.65% to ~6.50%. If we tether interest rates back to GDP, keep in mind that housing constitutes about 18% of the total gross domestic product in the United States. 

Degrees of Uncertainty 

Another Wall Street adage argues that “bad certainty is better than uncertainty.” At present, the NDX levels suggest that the worst-case scenarios have become less likely. Corporate profit margins slowed considerably in 2022 but remain historically strong. Fixed income markets hint that interest rates will peak following the May FOMC statement, and the cost of capital may decline by year-end

Nevertheless, there’s always a degree of uncertainty in markets, as in life. That reality is in part reflected in growing index option volumes. Average monthly NDX volumes for the calendar year 2022 were just shy of 500k, but through April of this year, that average number is just below 600k. 

From my vantage point, investors of all types have a better general understanding of options. Individuals and institutions continue to gravitate toward index options such as the Nasdaq-100 Index Options (NDX), Nasdaq-100 Reduced Value Index Options (NQX) and Nasdaq-100 Micro Index Options (XND), because they allow users to craft defined risk exposure based on their sentiment (depending on strategy) and/or manage their downside risk for the life of the options.  

A product that can reduce or eliminate uncertainty is inherently powerful. Index options allow market participants to answer historically ambiguous questions. For example, what if the macro picture deteriorates and the NDX retests lows (drops ~18.5%)? 

An investor that owns an NDX Index ETF(or another NDX proxy) with an option hedge could answer that question more precisely than someone without an index option hedge.  

Food for thought. Learn more here.

Originally Posted May 30, 2023 – What the Nasdaq-100 Can Tell Us About the Economy

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclosure: Nasdaq


Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2023. Nasdaq, Inc. All Rights Reserved.


For the sake of simplicity, the examples included do not take into consideration commissions and other transaction fees, tax considerations, or margin requirements, which are factors that may significantly affect the economic consequences of a given strategy. An investor should review transaction costs, margin requirements and tax considerations with a broker and tax advisor before entering into any options strategy.

Options involve risk and are not suitable for everyone. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained from your broker, one of the exchanges or The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 or call 1-888-OPTIONS or visit www.888options.com.

Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and education purposes and are not to be construed as an endorsement, recommendation or solicitation to buy or sell securities.

© 2023. Nasdaq, Inc. All Rights Reserved.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Nasdaq and is being posted with its permission. The views expressed in this material are solely those of the author and/or Nasdaq and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the “Characteristics and Risks of Standardized Options” also known as the options disclosure document (ODD) or visit ibkr.com/occ