A look back at the NASDAQ
Not to be overshadowed by the larger New York Stock Exchange (NYSE), the NASDAQ is the world’s second-largest stock exchange based on market capitalisation. Established in 1971, its full name, the National Association of Securities Dealers Automated Quotations System, alludes to its standing as a fully-electronic trading exchange.
Nowadays, with more than 3,000 companies listed on the NASDAQ worth over $10 trillion, the exchange handles the highest trading volumes across all US markets. The NASDAQ Composite Index is the main benchmark used to track the exchange, incorporating a market-capitalization-weighted index of all the stocks traded on the NASDAQ stock exchange.
The index has seen significant growth over the years, however, it hasn’t always been smooth sailing. On March 10, 2000, the NASDAQ Composite reached a high of 5,132.52, before falling by as much as 78% in the 30 months thereafter following the impact of the dot-com bust and 9/11.
It would be another 15 years before the index reclaimed its old high. Since 2015, however, the NASDAQ has outperformed both the Dow Jones Industrial Average and S&P 500, climbing 77% across the last five years versus returns of 29% and 34.7% respectively. Furthermore, since COVID-19, the NASDAQ has led the charge, such that it is now back in positive territory for 2020!
The familiar faces of the NASDAQ
Most stocks from the technology sector are listed on the NASDAQ, which has made it an increasingly popular index in recent years due to the fact technology has continued to underpin various advancements across society. The index also crosses over into subsectors including the likes of biotechnology, semiconductors, software, plus some financial, consumer and industrial stocks.
Apart from its sophistication as a fully-electronic exchange, one of the reasons so many technology companies list on the NASDAQ is due to it being a more accessible market. It means many smaller-cap stocks contribute towards making up this index. As such, the NASDAQ Composite Index gives a broader cross-representation that tracks large and small firms, unlike its peers the Dow Jones and S&P 500, which focus exclusively on large-cap stocks.
Some of the leading stocks that make up the NASDAQ include: Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Apple (APPL), Adobe (ADBE), Facebook (FB), Cisco (CSCO), Tesla (TSLA), Intel (INTC), Netflix (NFLX) and Gilead Sciences (GILD).
What’s driving the NASDAQ?
Due to the composition of the NASDAQ, it is little surprise that its rally has been sparked by big tech companies proving largely resilient to the economic shock arising from COVID-19.
If we consider the likes of the high-profile technology names mentioned above, who all boast solid balance sheets, the transition towards remote workplaces, online shopping, video communications and streaming, as well as cloud computing stand as potential tailwinds for these companies, rather than headwinds. Even though the economy has been hit hard, people have still been dependent upon the products and services offered by big tech to go about their day-to-day lives.
From their recent lows, Apple is up nearly 40%, Microsoft is up more than 35%, Alphabet is up around 30%, while Amazon has gained over 40%. In fact, Amazon has posted a new all-time high, whereas Apple and Microsoft are within touching distance of their own records and Alphabet is closing in on a US$1 trillion market cap. The top 10 companies on this index account for around 44% of its entire value, and with this group up about 12% year-to-date on average, the NASDAQ is quickly paring its losses.