Nasdaq Is Killing The Dow And Other Indices This Year
The difference between the performance of the major U.S. stock indexes is the largest seen in over a decade, according to a report by The Wall Street Journal.
The Nasdaq has set in at 12 percent gains for this year while the Dow Jones is down 8.8 percent and the S&P 500 rests between the two, still off by 3.5 percent. The height of Nasdaq over the other two is the biggest gap seen since 1983. The gap between the Dow and S&P 500 is the largest since 2002.
The reason for Nasdaq’s success compared to the other two indexes may be due in large part to the major tech companies who have an influence over it, like Apple, Microsoft, Amazon, Alphabet Inc., and Facebook. Together, those companies make up 40 percent of the Nasdaq and 20 percent of the S&P 500 while only Apple and Microsoft are in the Dow.
Those companies have benefitted greatly from stay-at-home orders amidst the pandemic. Amazon led the group with a jump in shares of 47 percent. Other areas, like the energy, financial, industrial, and utility sections of the S&P 500, have suffered from the effects of the pandemic.
Only six of the 30 companies included in the Dow are positive for this year, and almost all of their gains have been cancelled out by the slide in shares of Boeing, which dropped 42 percent this year due to the pandemic.
“The fact that the Dow Jones does not have Amazon especially, and then Alphabet and Facebook, definitely has contributed to the underperformance,” said James Ragan, director of wealth management research at D.A. Davidson.
The contrasts between the indexes marks a difficult challenge for investors when valuing stocks.
“You really need to triangulate across the three different indices,” said Susan Schmidt, head of U.S. equities at Aviva Investors. “You can’t depend on any one index right now. You really do need to consider all three of them and know what’s in them.”
The S&P 500 has been considered the broadest index as it covers close to 80 percent of the available market capitalization in the U.S. The Dow, by contrast, values stocks by price and not market value, and only includes 30 stocks, and the Nasdaq is considered to be a tech benchmark.
Read the full report here.