Historical Index Performance as at November 2024
 Index    1-Year Performance(%)    5-Year Performance (%)   10-Year Performance (%)     All-Time Performance (%)  
 Nasdaq Composite    33.14    122.93   299.32     18,489  
 S&P 500   31.16    91.93    188.47    132,606   
 Dow Jones Industrial Average   25.71    58.95    148.26    107,954   
Nasdaq Composite Historical Performance Trends

Some notable performance trends of the Nasdaq Composite include:

Dot-com Boom and Bust (Late 1990s-Early 2000s)

During the late 1990s, the Nasdaq Composite experienced huge growth driven by a surge in technology and internet companies. From 1995 to 2000, the index rose more than 500%, fueled by raging optimism—some would say delusion—about the potential of internet-focused companies. The bubble burst in 2000, with the Composite declining by roughly 78% between 2000 and 2002.

Post-COVID Boom (2020)

After the COVID-19 pandemic erupted in 2020, the Nasdaq Composite outperformed other indices due to the pandemic-driven demand for e-commerce, cloud computing, and remote work solutions. It rose by about 140% from the low point during the initial COVID panic in early 2020 to a peak in November 2021, boosted by major gains in companies like Apple, Amazon, Microsoft, and Tesla.

Some notable performances of the S&P 500 include:

1980s-1990s Bull Run

This index benefited significantly from the economic expansion and stock market boom of the 1980s and 1990s, supported by deregulation, lower taxes, falling interest rates, and technological advancements. During this period, the S&P 500 generated impressive returns, with annual gains averaging around 15% during the 1990s.

2008 Global Financial Crisis

The S&P 500 fell about 56% from its peak in October 2007 to its low in March 2009, as the financial sector, which has a significant representation in the Index, was decimated by the subprime mortgage crisis. However, the index rebounded significantly in the subsequent bull market from 2009 onwards, driven by monetary stimulus and an earnings recovery.

Some notable performance trends of the Dow include:

The Great Depression (1929):

The Dow suffered catastrophic declines during the Great Depression, losing about 90% of its value between 1929 and 1932. It dropped nearly 13% in one day on Oct. 28, 1929—known as Black Monday. The Dow didn't return to its previous high for a quarter century.

Post World War II Economic Boom:

The Dow rose steadily throughout the 1950s and the first half of the 1960s, supported by increased consumer spending and rapid industrial growth.

All three indices offer unique insights into the economy. The Nasdaq Composite includes 3,000 companies, primarily focusing on technology and growth sectors, which account for more than half of its composition. This makes it a good proxy for innovation and market sentiment in growth stocks, but its tech-heavy weighting also means it is more volatile than the other indices.

The S&P 500 is comprised of 500 of the largest U.S. companies across all 11 major sectors, including technology, healthcare, financials, and industrials, making it a balanced benchmark for tracking the overall economy and market health. Its diversification helps smooth out volatility and makes it a key gauge for long-term stability and growth.

In contrast, the Dow has only 30 companies but they are blue-chip, emphasizing stability, resilience, and leadership in their respective industries. Its price-weighted methodology gives greater influence to high-priced stocks, rather than market cap, and it focuses on long-term, stable growth.

Even though the Dow lacks the broad representation of the S&P 500 or the tech-heavy Nasdaq, its emphasis on well-established, high-quality firms makes it a reliable indicator of traditional economic strength.

Overall, each index has a specific purpose. The Nasdaq Composite for tracking growth and tech trends, the S&P 500 for broad market representation, and the Dow for blue-chip stability. These indices help investors evaluate risk, opportunities, and overall market conditions.

Differences Among the Indices
 Factor   Nasdaq Composite    S&P 500    Dow Jones Industrial Average   
 Number of Companies    Over 3,000   500    30  
 Sector Focus    Technology and biotech    Diversified across 11 sectors    Covers a handful of sectors  
 Weighting Methodology   Market-cap weighted     Market-cap weighted     Price weighted  
 Volatility   High   Moderate   Low  
 Year Established   1971     1957   1896  
 Key Strength   Tracks innovation and high-growth industries    Balanced representation of U.S. economy    Stability and long-term resilience   
Weighting Methodologies

Both the Nasdaq Composite and the S&P 500 are market-cap weighted, meaning that larger companies by market value have greater influence on the performance of the index. This allows these indices to reflect the economic impact of major corporations, with companies like Apple, Microsoft, and Amazon playing outsized roles.

In contrast, the Dow employs a price-weighted methodology, where companies with higher stock prices have a greater influence on index movements, regardless of their size. This structure can lead to anomalies in sector representation.

Together, these indices provide complementary insights, helping investors evaluate market dynamics and tailor strategies to their specific goals.

Firstly, the Nasdaq Composite has the most inclusive selection criteria, having no strict financial requirements. However, the S&P 500 applies a rigorous criteria, requiring companies to meet thresholds for market cap, liquidity, and profitability. This ensures it includes only the most stable and influential companies, representing a relatively balanced cross-section of sectors.

Lastly, the Dow focuses on blue-chip companies that are leaders in their industries, selected based on qualitative factors such as reputation and stability.

The criteria for selection of the Nasdaq Composite are as follows:

Listing Requirement: The company must be listed on the Nasdaq Stock Exchange.

Securities Included: Some securities include stocks, American Depositary Receipts (ADRs), Real Estate Investment Trusts (REITs) and limited partnership interests.

The criteria for selection of the S&P 500 Index are as follows:

Market Capitalization: A company must have a market capitalization of at least $14.5 billion.

Liquidity: The stock must be highly liquid, with a high trading volume to ensure that it can be bought and sold easily without affecting the stock price too much.

Profitability: Companies must demonstrate positive earnings in the most recent quarter, as well as over the last four consecutive quarters. This profitability requirement ensures that companies included in the index have a proven track record of financial stability.

Domicile: The company must be based in the U.S. and listed on an approved stock exchange.

Public Float: The company's shares, typically 50%, must be available for public trading.

Sector Balance: The S&P Dow Jones Indices Committee also takes sector representation in account to ensure the index reflects the broader U.S. economy.

The criteria for selection of companies in the Dow are as follows:

Company Size and Reputation: The companies included in the Dow are typically large, well-established firms with strong reputations and long histories of stability and profitability. These companies are considered leaders in their industries.

Stock Price: The price-weighted methodology of the Dow necessitates that constituent stocks have sufficiently high prices to ensure they have an appropriate impact on the index's movement.

Sector Representation: The Index aims to maintain a balance across the major sectors of the U.S. economy, though it does not cover all sectors. The Averages Committee at S&P Dow Jones Indices selects companies to reflect the U.S. economy, with an emphasis on industrial leadership and sector diversification.

Qualitative Factors: Compared to the Nasdaq Composite and the S&P 500, the Dow gives greater weight to qualitative factors like a company's reputation, stability, and industry influence. The selection process is also guided by ensuring that the index represents industries important to the U.S. economy, making sector balance crucial. The decision-making process is discretionary, meaning that there are no strict numerical cutoffs for market cap, revenue or earnings.

Each index can provide a relative investment strategy as they cater to distinct enough risk profiles and goals. The Nasdaq Composite is ideal for growth-oriented investors with a high risk tolerance. It supports strategies like momentum investing and thematic plays in cutting-edge industries.

With the S&P 500 there can be a balanced and diversified approach, utilizing core-satellite equity strategies. As it pertains to the Dow, dividend growth and value investing strategies would be the choice for investors.

Typical Index Investment Strategies
 Index   Investment Strategy    Risk Profile     Suitable Investor Goals  
 Nasdaq Composite    Growth, Momentum, Thematic    High    Investors seeking high growth potential with long-term horizon and high risk tolerance.  
 S&P 500    Core Equity, Buy-and-Hold    Moderate    Investors seeking broad market exposure, diversified risk, and steady, long-term returns.  
 Dow Jones Industrial Average    Income, Dividend Growth, Value    Low    Conservative investors focused on capital preservation, income and blue-chip stability.  

What are the Implications of the Weighting Methodologies on Index Performance?

Both the Nasdaq Composite and S&P 500 are market-cap weighted, giving larger companies like NVDA, MSFT, and AAPL outsized influence on performance. However, the S&P 500's broad diversification relative to the Nasdaq gives the S&P 500 more balanced returns.

On the other hand, the Dow uses a price-weighted methodology, where stocks with higher prices exert more influence on the index's movement regardless of their market cap. Each methodology has trade-offs, with the Nasdaq favoring growth potential, the S&P 500 offering broad market returns, and the Dow stable and resilient returns.

How do the Nasdaq Composite, the S&P 500, and the Dow Respond to Economic Downturns?

The Nasdaq Composite, S&P 500 and the Dow respond differently to economic downturns due to their different compositions and weighting methodologies. The Nasdaq, heavily concentrated in technology and biotech stocks, is the most volatile of the three. The S&P 500 tends to react more modestly, as defensive sectors like healthcare and utilities help cushion losses. The Dow is the most resilient, offering stability through diversified business models and as well as company size and industry leadership.

Are there Similar Popular Bond Indices?

Investors tend to use the 2-, 5-, 10- and 30-year Treasury yields as a way to gauge short-, medium- and long-term yields. Some other popular indices include the Bloomberg US Aggregate Bond Index and ICE BofA US Treasury Index. Moreover, traders and investors also use ETFs to help them track the performance of corporate, emerging market and high-yield debt.

The three primary U.S. equity benchmarks—the Nasdaq Composite, the S&P 500 and the Dow—each offer a unique lens through which to view and invest in the U.S. economy. The Nasdaq's focus on technology and biotech stocks makes it attractive for investors seeking high returns and willing to endure more volatility. The S&P 500, with its broad representation across multiple sectors, serves as the most comprehensive measure of the U.S. equity market, balancing growth with stability. The Dow is the benchmark for blue-chip stability, representing well-established, industry leading companies.