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The Dow vs. The Nasdaq: An Overview
The terms “Dow” and “Nasdaq” are often used as shorthand for the U.S. stock market, but each refers to different things investing. While both indexes track stock prices and are key indicators of what’s happening in the market trends, they cover different types of companies and thus have different purposes for investors.
The Dow Jones Industrial Average is a historical index of 30 blue-chip companies across industries, primarily representing the broader U.S. economy. The Nasdaq refers to a tech-heavy stock index comprising over 3,500 companies. Understanding the distinctions between these two can give investors a better sense of where market movements are coming from and what sectors might be driving growth.
Key Takeaways
- The Dow and Nasdaq are both stock indexes, but they track different companies.
- The Dow includes 30 large-cap, influential U.S. companies, while the Nasdaq Composite tracks more than 3,500 stocks, heavily skewed toward technology and growth sectors.
- The Nasdaq also refers to an exchange where investors can buy and sell stocks.
- Although investors can’t trade the indexes directly, they can invest in index funds or exchange-traded funds (ETFs) that replicate the performance of these indexes.
- The Dow’s stability is often taken to indicate traditional market confidence, while the Nasdaq’s volatility highlights the performance of more innovation-reliant, high-growth sectors.
The Dow Jones Industrial Average
The Dow Jones Industrial Average, nicknamed “the Dow,” is like a VIP list of 30 of America’s most influential companies. Created in 1896 by Charles Dow, it’s Wall Street’s oldest and most-watched popularity contest, featuring corporate giants that are household names.
Despite having “Industrial” in its name, the Dow’s fortunes are not just linked to the U.S.’s industrial base. It includes diverse companies like Apple Inc. (AAPL) (tech), Coca-Cola Company (KO) (beverages), Goldman Sachs Group (GS) (finance), and Walmart Inc. (WMT) (retail). Thus, it’s long presented a carefully curated list of America’s corporate blue-chip stocks. Below are all the companies presently on the list:
One of many indexes owned by S&P Dow Jones Indices LLC, the Dow is “price-weighted,” meaning companies with higher stock prices have more influence on the index’s movements.
The Nasdaq
The Nasdaq is a term that can refer to two different financial items. The first is the National Association of Securities Dealers Automated Quotations stock exchange. Created in 1971, it earned fame as the first electronic stock exchange, making it the natural home for tech companies.
The second reference is to the oldest index arising from the Nasdaq, the Nasdaq Composite Index, which, like the DJIA, is a statistical measure of a portion of the stock market.
While the Nasdaq includes companies from various industries, it’s best known as tech’s home turf. When investors want to take the temperature of the technology sector, they often look at the Nasdaq’s performance. That’s why during the dotcom bubble of the late 1990s and the tech boom of the 2020s, the Nasdaq often moved more dramatically than other market measures.
Key Differences
The Dow and Nasdaq are two different lenses for viewing the stock market. While both help investors understand market trends, they differ significantly in size, focus, and how you can invest in them.
Size and Scope
The Nasdaq Composite has over 3,500 companies, from small caps to the biggest firms in the world. Many are technology firms, but you’ll also find healthcare startups, retail chains, and banks in the mix. By contrast, the Dow is an exclusive club of just 30 carefully selected corporate giants, mostly drawn from the New York Stock Exchange (NYSE), though it does include tech heavyweights like Apple and Microsoft Corporation (MSFT).
Over the past few years, the NYSE and Nasdaq have traded places for a title NYSE until recently quite ably held all its own, namely the stock exchange with the highest market cap in the world.
Focus and Personality
The Nasdaq has earned its reputation as technology’s home field, making it a good barometer for how tech stocks and growth companies are performing. When investors want to gauge the health of the sectors pushing the technological edge—from AI to biotechnology—they often look to the Nasdaq first. The Dow, meanwhile, tends to reflect the broader U.S. economy through established leaders in traditional sectors like banking, retail, and manufacturing.
Investment Options
While investors can’t directly buy “the Dow” or “the Nasdaq”—since they’re just mathematical averages—they can invest in funds that mirror these indexes. ETFs like the SPDR Dow Jones Industrial Average ETF (DIA) track the Dow, while the Invesco QQQ Trust (QQQ) follows the Nasdaq-100, a subset of the largest Nasdaq companies. These funds offer a way to invest in either index’s performance minus management fees and trading costs.
3,300
The number of companies in the Nasdaq Composite Index, which measures all domestic and international Nasdaq common stocks.
Trading Patterns
The indexes often move differently based on what’s driving the market. During tech booms, the Nasdaq typically shows more dramatic moves up or down because of its heavy technology weighting. The Dow, with its mix of older, established companies, tends to be less volatile but might better reflect broader economic trends like interest rate or consumer spending shifts.
What Is the Difference Between the Dow, the S&P 500, and the Nasdaq 100?
The Dow is the Dow Jones Industrial Average, a stock market index comprising 30 of the most prominent companies in the U.S. The S&P 500 is a stock market index made up of 500 of the largest companies in the U.S. by market cap. The Nasdaq 100 is a stock market index of 100 of the largest nonfinancial companies that trade on the Nasdaq exchanges, ranked by market capitalization.
Can a Company Be in the Dow and the Nasdaq?
A company that is on the Nasdaq can also be in the Dow. The Dow represents 30 of the most prominent companies in the U.S. regardless of which exchange it trades on. Many of the companies included in the Dow index are listed on the Nasdaq exchange, such as Apple and Microsoft.
Are all the Companies in the Dow Also in the S&P 500?
Yes, all the companies in the Dow are also in the S&P 500. The Dow focuses on 30 prominent U.S. companies on all exchanges while the S&P 500 focuses on 500 of the largest companies in the U.S. by market cap. As such, the design of the S&P 500 will include the companies in the Dow.
The Bottom Line
Both the Dow and the Nasdaq are stock market indexes that provide insight into the broader economy. While the Nasdaq is also a stock exchange, the Dow is purely a stock market index. The Dow does include stocks on both the NYSE as well as the Nasdaq while any Nasdaq indexes include only stocks listed on Nasdaq exchanges.
Investors can gain exposure to both the Dow and the Nasdaq by investing in index funds that track the indexes.