Definition
NASDAQ (National Association of Securities Dealers Automated Quotations) and Dow Jones are both American stock exchanges, but they represent different sets of companies. The NASDAQ primarily lists technology and internet-based companies, having around 3,300 stocks. The Dow Jones Industrial Average (DJIA), on the other hand, is an index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange and the NASDAQ.
Key Takeaways
- NASDAQ and Dow Jones are both American stock exchanges, but they represent different kinds of companies. While NASDAQ is known for tech-based, growth-oriented companies, Dow Jones represents industrials, and is typically made up of long-standing, established companies.
- The Dow Jones Industrial Average (DJIA) is a price-weighted index consisting of 30 significant U.S companies whereas NASDAQ is a market-cap weighted index, containing around 3,000 companies from 50 different countries. This makes NASDAQ more broad-based than DJIA.
- NASDAQ also has a reputation for being more volatile and riskier due to the presence of many fast-growing tech companies that are sometimes more prone to large price swings. On the contrary, the Dow is often seen as a better reflection of the health of the overall traditional industrial economy.
Importance
The finance terms NASDAQ and Dow Jones refer to two of the most influential stock exchanges in the world, making them critically important to global finance.
The Dow Jones Industrial Average (DJIA) is considered a snapshot of the overall health of the U.S.
economy, composed of 30 large, widely-held public companies across various industries, thus often used as a barometer for the broader market’s performance.
On the other hand, the NASDAQ is the world’s first electronic stock market and primarily lists technology and internet-based companies.
Understanding the performance and trends of both these indexes are crucial for investors and economists to gauge market trends, assess economic health, making investment decisions, predicting future market movements, and understanding the performance of particular sectors, notably tech.
Explanation
NASDAQ and Dow Jones are two major stock exchange indexes in the United States that provide significant insights into the country’s economic health. The purpose of the NASDAQ Composite, often used as a benchmark for tech stocks, is to offer a broad representation of stocks that are heavily focused on the technology sector.
It includes more than 3,000 listed securities, making it more comprehensive and not restricted to only American companies. The index is used by traders and investors to track the performance of the technology market and furthermore, serves as a benchmark to measure the health of this sector and the global economy.
On the other hand, the Dow Jones Industrial Average (DJIA) is primarily for providing a clear view of the daily trading activity on the New York Stock Exchange (NYSE). It consists of 30 of the biggest and most influential American companies across a range of sectors, except utilities and transportation. This narrower view helps to provide insight into the performance of these highly valued and influential companies.
Investors and analysts thus use the DJIA as a reflection of the general market sentiment and direction, hence monitoring the robustness of industrialized America. Both these indexes serve different purposes and are used for contrasting equity market analysis, depending on the focus of the trader or investor.
Examples of NASDAQ vs Dow Jones
Company Scaling: A real-world difference between NASDAQ and Dow Jones comes in form of companies they include. NASDAQ is home to technology giants like Facebook, Apple, Amazon, Netflix, Google, etc., while Dow Jones hosts old, well-established companies like Coca-Cola, General Electric, and Boeing. This highlights the key difference between the two as NASDAQ is more likely to be affected by performance of tech industry while Dow Jones performance is a more general reflection of the large-scale industries.
Timely Market Movements: In March 2020, during the initial outbreak of the COVID-19 pandemic, the global stock market witnessed significant turbulence. The Dow Jones Industrial Average fell by
93% on March 16, marking its worst single-day percentage loss since the infamous crash in
NASDAQ, during this same period, also experienced a sharp decrease, however, being more tech-centric, recovered significantly faster in the months following, due to the increased reliance on tech during lockdowns.
IPO Listing: A real-world example related to IPOs would be Alibaba, the Chinese e-commerce giant. When Alibaba decided to go public in 2014, it chose to list on the New York Stock Exchange (NYSE), rather than the NASDAQ. However, NASDAQ has been the traditional choice for technology companies, as seen in the examples of Facebook, Zoom, and Lyft. The choice between NASDAQ and Dow Jones can influence the company’s market perception, visibility, and volatility.
NASDAQ vs Dow Jones FAQs
1. What is NASDAQ?
NASDAQ, commonly known as The Nasdaq Stock Market, is an American stock exchange. It is the second-largest stock exchange in the world by market capitalization, immediately after the New York Stock Exchange. NASDAQ is known for its design which largely consists of tech stocks.
2. What is Dow Jones?
The Dow Jones Industrial Average (DJIA) is one of the oldest and most-watched indices in the world. The Dow Jones is named after Charles Dow, who created the index back in 1896. It tracks 30 large, publicly-owned companies based in the United States.
3. What is the main difference between NASDAQ and Dow Jones?
The main difference between NASDAQ and the Dow Jones lies in the companies that make them up, as well as how they’re calculated. The Dow Jones Industrial Average is made up of just 30 companies, which are meant to represent a cross-section of American industry. On the other hand, the NASDAQ composite has over 3,000 companies, with a heavy emphasis on the technology sector.
4. Can NASDAQ and Dow Jones influence each other?
Yes. Although they are different indices, they represent significant parts of the US economy. Therefore, a major event impacting the companies listed on one of the indices may also influence the companies on the other index.
5. How does the value of NASDAQ and Dow Jones fluctuate?
The value of both NASDAQ and Dow Jones fluctuates depending on the performance of the companies listed on them. If the companies perform well, the value of the index will increase, and vice versa.
Related Entrepreneurship Terms
- Stock Exchange: Both Nasdaq and Dow Jones are well-known stock exchanges where buying and selling of securities take place.
- Market Capitalization: This term refers to the total dollar value of a company’s shares of stock. Nasdaq and Dow stocks generally have high market capitalizations.
- Index: Both Nasdaq Composite and Dow Jones Industrial Average (DJIA) are indexes, which help investors have a summary view of the market’s performance.
- Blue Chip Companies: These are nationally recognised, well-established, and financially sound companies, many of which are included in the Dow Jones.
- Tech Stocks: Nasdaq is often associated with tech stocks because many high-tech companies, including Google, Apple, and Facebook, are listed on it.
Sources for More Information
- Investopedia: A comprehensive source for financial information, including detailed articles on both NASDAQ and the Dow Jones.
- CNBC: A reliable source for finance and business news. They often provide updates and articles on NASDAQ and Dow Jones.
- Reuters: An international news organization that provides financial reports and market data.
- Bloomberg: A financial, software, data, and media company that provides news and information about global financial markets.
