Differences Between the Dow and NASDAQ

Dow vs NASDAQ

Dow and NASDAQ are terms often used in the market field. Since Dow and NASDAQ are not quite understood by laypeople, they use the term “the market” whenever they want to know how well the economy is doing today. And because of that, Dow and NASDAQ are often used interchangeably without realizing their true differences. However, both Dow and NASDAQ refer to market indexes.

The proper term for the Dow is the Dow Jones Industrial Average, or DJIA. It is the oldest stock market index, and it is the most followed measure of the market. Charles Dow introduced the DJIA since 1896. In the past, the Dow was only composed of 12 stocks, but today it comprises 30 stocks. The Dow is only composed of the top 30 highest-earning companies in the U.S. It monitors how well those 30 companies perform in the stock market. The current listing of the 30 companies may be changed since the DJIA membership is revolving. This means that a company may be dropped from the Dow list if its earnings and stock prices fall behind.

The editors from the Wall Street Journal select the top 30 companies for the stock market index. Since the Dow only consists of the highest-earning companies, it is considered as the major barometer for the economy. The financial media and the public refer to the Dow when they want to know the health of the economy at large. The Dow only shows how well the 30 companies are doing as a group but does not indicate their individual stocks. If the Dow is up, we can still presume that one of its companies is suffering stock price fluctuations.

NASDAQ stands for National Association of Securities Dealers Automated Quotation. If the Dow is composed of 30 stocks, the NASDAQ is composed of 3,000 – 5,000 stocks. The NASDAQ is a computerized system which makes the work easier for determining trading stocks and providing quotes for several stock prices. It is the place for sharing, buying, and selling stocks. The NASDAQ stock market index uses the market capitalization method in order to find out the stock market average index. The market capitalization method works by analyzing a specific stock price, and then you will multiply it by all the shares available to the public.

The NASDAQ, unlike the Dow, includes in its index 3,000 – 5,000 companies. It was introduced in the year 1971. The companies need not be large like what is included in the Dow. In fact, the NASDAQ is composed of companies of all sizes, top earners or not. Technology-related companies trade on the NASDAQ since it composes a vast concentration of technology stocks. The rise and fall of the NASDAQ stock market index depends largely on the technology sector. Microsoft, Intel, Apple, and Google are technology companies which are included in the Dow as well as the NASDAQ.  It is said that if the stock market index of both the Dow and the NASDAQ are increasing positively towards the same direction, it is an indication that the economy is in good health.

Summary:

1. The proper name for the Dow is Dow Jones Industrial Average, or DJIA. NASDAQ stands for National Association of Securities Dealers Automated Quotation.
2. Both the Dow and the NASDAQ refer to stock market indexes.
3. The Dow is the oldest stock market index, and it is the most followed measure of the market introduced by Charles Dow in 1896. The NASDAQ was introduced in 1971.
4. The Dow is composed of 30, highest-earning companies while the NASDAQ is composed of companies of all sizes ranging from 3,000-5,000 stocks.

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