NASDAQ vs Dow Jones

Difference Between NASDAQ and Dow Jones

NASDAQ and Dow Jones have been used interchangeably but actually have different meanings.

NASDAQ vs Dow Jones

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Source: NASDAQ vs Dow Jones (wallstreetmojo.com)

  • Dow refers to Dow Jones Industrial Average (DJIA), which is a crucial stock market index across the globe.
  • NASDAQ, on the other hand, refers to the National Association of Securities Dealers Automated Quotients Exchange, which is an electronic exchange system.

NASDAQ vs. Dow Jones Infographics

Here are the top 4 difference between NASDAQ vs. Dow Jones

NASDAQ VS DOW

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Key Differences

  1. NASDAQ is a stock market index of the US that contains around 3,000 companies, whereas the DJIA comprises 30 major companies belonging to the industry leaders and major contributors to the industry and the stock market.
  2. NASDAQ primarily includes technology-based corporations such as Apple, Google, and several other companies in their growth stages. DJIA is circulating around the earnings of the companies, and they may be pulled off if the stock prices falter.
  3. NASDAQ is based on the value of the company’s outstanding stockOutstanding StockOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.read more, i.e., on the market capitalization average of multiple companies on the index. Dow Jones is a price-weighted average index indicating that any type of stock splitStock SplitStock split, also known as share split, is the process by which companies divide their existing outstanding shares into multiple shares, such as 3 shares for every 1 owned, 2 shares for every 1 held, and so on. The company's market capitalization remains unchanged during a stock split because, while the number of shares grows, the price per share decreases correspondingly.read more or adjustment is not considered in the average price computation. Thus, if one firm falters in the share price, the value of the entire index can deteriorate. For e.g., in 2008, the value of the AIG fell from $451 to $54 due to the financial crisis and the market, in turn, fell by 3,000 points.
  4. The rise and fall of the NASDAQ stock market depend largely on the performance of the technology sector, but in the case of DJIA, the performance is focussed on the 30 major companies as a group and not as individual stocks.
  5. NASDAQ stock market has 3 different market tiers, namely:

On the other hand, Investment in DJIA is Accessible Through:

  1. ETF (Exchange Trade fundsExchange Trade FundsAn exchange-traded fund (ETF) is a security that contains many types of securities such as bonds, stocks, commodities, and so on, and that trades on the exchange like a stock, with the price fluctuating many times throughout the day when the exchange-traded fund is bought and sold on the exchange.read more), including Leverage or Short strategies. Due to improvements in premarket trading, ETFs offer a more accurate opening value for the average.
  2. Futures Contract: Dow futures are one of the most critical premarket tools and indicate how the DJIA will open.
  3. Options Contract

NASDAQ Quotes are Available at 3 Levels

DJIA calculation is computed by taking the sum price of all 30 stocks and dividing them by the Dow Divisor. This divisor gets adjusted with respect to stock splitsStock SplitsStock split, also known as share split, is the process by which companies divide their existing outstanding shares into multiple shares, such as 3 shares for every 1 owned, 2 shares for every 1 held, and so on. The company's market capitalization remains unchanged during a stock split because, while the number of shares grows, the price per share decreases correspondingly.read more, spin-offs, or other such similar structural changes for more accuracy.

NASDAQ vs. Dow Jones Comparative Table

Basis of ComparisonNASDAQDow Jones
MeaningKey index indicating stock market performanceAn electronic marketplace where investors can buy/sell securities.
Index/ExchangeBoth an index and exchangeOnly an index of 30 major companies
ExistenceThe new index invented in 1971, although it reserves its crown in electronic stock exchangeStock ExchangeStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ.read more;Older index established in 1896 developed by Charles Dow
AbbreviationNational Association of Securities Dealers Automated QuotationDow Jones Industrial Average

NASDAQ to Dow Jones Ratio

It is an interactive chart that shows the ratio of the NASDAQ Composite Index to the DJIA. A high ratio indicates the high level of bullishness since high momentum technology stocks can attract many more investor funds than traditional industrial firms, as reflected in the DJIA. It is observed that if the stock market index of both Dow and Index is increasing positively in the same direction, it is an indication of the economy in good health. Below is an example of the chart indicating the ratio of both the indexes. It clearly shows that during 1999-2000, the ratio was very high, which was due to the dot-com bubble incident.

NASDAQ VS DOW (Graph)

source: macrotrends.net

Conclusion

One should note that though both NASDAQ and Dow refer to the market indices, it’s only the NASDAQ where investors can buy and sell stocks. Additionally, an investor can’t trade on the indexes as NASDAQ and DOW represent a mathematical average that people make use of for understanding the market. Investors can purchase index fundsIndex FundsIndex Funds is a form of mutual fund constructed to replicate and match the performance of a particular country's index like S&P, NASDAQ, etc., and helps investors take broad market exposure due to the amount invested in various stocks of the different sectors of the economy.read more or ETF (exchange-traded funds).

This has been a guide to NASDAQ vs. Dow Jones. Here we discuss the top differences between NASDAQ and Dow Jones along with infographics and a comparison table. You may also have a look at the following articles –

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