The Dow vs. the Nasdaq: An Overview
Because of the way people frequently use the phrases "the Dow" and "the Nasdaq," in some instances both of these terms have become synonymous with "the market" or "the economy." However, this can provide an inaccurate impression of what these terms actually refer to. While both the Dow and the Nasdaq are indexes that investors can track, neither of these indexes actually refers to the market or the economy in general. Instead, they are theoretical snapshots of the market that can provide investors with an idea of how the market or the economy is performing.
- Both "the Dow" and "the Nasdaq" refer to market indexes.
- The Nasdaq also refers to an exchange where investors can buy and sell stocks.
- Although it can be misleading based on how the terms are frequently used, neither the Dow nor the Nasdaq refers to "the market" or "the economy."
- Investors cannot trade the Dow or the Nasdaq indexes because they are representations of the performance of a grouping of stocks in the form of a mathematical average.
- However, investors can purchase index funds–or exchange-traded funds (ETFs)–that track these indexes.
What's The Difference Between The Dow And The Nasdaq?
"The Dow" actually refers to the Dow Jones Industrial Average (DJIA), an important index that many people pay attention to in order to get an indication of how well the overall stock market is performing. The DJIA is not the same as Dow Jones and Company, a firm that is owned by News Corp. and publishes the periodical called The Wall Street Journal.
Rather, the index is one of many indexes owned by S&P Dow Jones Indices LLC, a joint venture of S&P Global (SPGI), CME Group Inc., and News Corp.
The DJIA is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq. The DJIA was invented by Charles Dow in 1896. It measures the performance of some of the United States' biggest blue chip companies. The industrial part of the name is largely historical; very few of the index's component companies have anything to do with heavy industry anymore.
The Nasdaq is also a term that can refer to two different things. The first is the National Association of Securities Dealers Automated Quotations exchange which is the first electronic exchange that allowed investors to buy and sell stock on a computerized, speedy, and transparent system without the need for a physical trading floor. The second reference is to an index. When you hear people say that the "the Nasdaq is up today," they are referring to the Nasdaq Composite Index, which, like the DJIA, is a statistical measure of a portion of the stock market.
Both the Dow and the Nasdaq, then, are terms that refer to an index, or an average of a great many numbers derived from the price movements of certain stocks. The Nasdaq contains all of the companies that trade on the Nasdaq. Most are technology and internet-related, but there are financial, consumer, biotech, and industrial companies as well. The Nasdaq tracks more than 3,300 stocks. The DJIA is composed mainly of companies found on the New York Stock Exchange, with only a couple of Nasdaq-listed stocks such as Apple (AAPL), Intel (INTC), Cisco (CSCO), and Microsoft (MSFT).