Today, NASDAQ is the largest electronic equities exchange in the U.S. In 2008, it merged with OMX ABO, a Stockholm-based operator of exchanges located in the Nordic and Baltic regions. The new company, NASDAQ OMX Group, lists stocks of over 3,800 companies. It also offers trading in derivatives, debt, commodities, structured products and ETFs. In addition, it provides services to over 70 other stock exchanges in more than 50 countries. For example, it provides exchange technology, which helps in stock trading, clearing and regulatory solutions.
The NASDAQ OMX Group also offers public companies tools to help with investor relations, market intelligence, board relationships, and news dissemination. It helps them raise capital through the U.S. Rule 144A. This rule allows the immediate resale of private placement securities among qualified institutional buyers without requiring public registration.
Difference Between Dow, NASDAQ and S&P 500The main difference is that the NASDAQ is an exchange, much like the New York Stock Exchange, whereas the Dow and the S&P 500 are indices that track the performance of selected stocks. The NASDAQ reports on all the performance of all the companies that have listed with it. When people refer to the Dow, they are referring to one of three indices, the Dow Jones Industrial Average. This follows the stock prices of 30 companies selected by the editors of the Wall Street Journal to represent their industries. They tend to be large, well-known companies like General Electric and Kraft Foods. The S&P 500 tracks the 500 most widely held stocks on the NYSE. The S&P 500 tends to be broader, hoping to have a bigger representation of companies from various sectors and industry groups. Since it has more financial stocks than either the NASDAQ or the Dow, it hasn't performed as well as the other two since the 2008 financial crisis.
Since all three indices track U.S. stocks, they pretty much trend together. However, since they use different approaches, there will be other variations that you should know about. The Dow weights stocks with higher share prices more heavily. That means the Dow's performance will be swayed by companies that haven't split their shares, and thus have maintained higher stock prices. The NASDAQ weights according to total market capitalization. It simply takes the share price and multiplies it by the number of shares issued. Therefore, it doesn't matter whether a company has split it stock or not. The S&P 500 is weighted like the NASDAQ, by market capitalization, with one important difference. It only counts publicly-available shares. Therefore, a company that has a lot of stock still held by a founding family won't have as much sway.
NASDAQ and the Y2K ScareHere's an example of how the indices differ. Since the NASDAQ handles more technology-related stocks, it reached its peak on March 10, 2000 when it closed at its all-time high of 5,048.62. That was caused by the tech bubble, when irrational exuberance drove the prices of any type of tech or internet stock high above reasonable valuations.
This bubble, itself, was driven by the Y2K scare. That's when most companies and many individuals bought new computer systems. They were afraid old software might not be able to transition from dates that started with "19" to dates that started with "20." That's because many software systems only recognized the last two digits of any year. Therefore, computer and software manufacturers warned everyone to update their computer systems so they wouldn't fail at the stroke of midnight in the new millennium. This caused sales to soar, which made it look like any tech-related company was sure to make a profit.
As it turned out, most computer systems were fine. Since everyone had just bought computers, demand was low, and orders for tech-related products plummeted. So did the NASDAQ, after reaching its peak in March.