What is the NASDAQ?

One of the things that we are hearing in the news is that the NASDAQ index is hitting record levels since the COVID share market falls of February and March this year.

The NASDAQ is a stock exchange, based in New York and is the second largest stock exchange in the world.  It is second only to the New York Stock exchange in the value (capitalisation) of shares that it trades. 

It was the first stock exchange in the world to trade online (in 1998) and was also the first stock exchange in the world to partner with another to provide an intercontinental link (with the London Stock exchange) 

The Nasdaq has attracted a lot of listings of tech companies and suffered greatly when the dot.com bubble burst in late 2000.  In the following 2 ½ years, the NASDAQ composite index fell 78% from its peak on March 20, 2000.  At present, around 3,800 companies trade on the NASDAQ. The 10 largest companies that trade on the NASDAQ are Microsoft, Apple, Amazon, Alphabet (Google), Facebook, Intel, Cisco systems, Comcast, PepsiCo and Adobe. 

When you hear a reference to the NASDAQ as an index, it is a composite of all of the companies that trade on the NASDAQ.  They also have a NASDAQ 100 index but this is not as commonly reported.

Why is the NASDAQ hitting record levels?

With the NASDAQ being the home of the majority of tech stocks, these are businesses that have fared well from the impact of Covid.  Just outside the top 10 companies sits Netflix, whose shares have gone from $298 US in the middle of March to $494 US.  Their customer numbers subscribing to their streaming service jumped 10% in the second quarter of 2020 with lockdowns in place around the world.  Many of the other top 10 businesses have also seen a significant jump in people using or subscribing to their services through lockdowns.  

Will the NASDAQ continue to hit record levels?

One would imagine that lockdown conditions, while they continue around the world, will strongly favour some of these businesses.  However, the test will be to see if the tech businesses can retain the higher number of customers once lockdowns cease.  Will people continue to use Netflix once they can go outside and move freely?  Will people continue to use online shopping once they can go to a shop and buy what they need?  There is anecdotal evidence that online shopping has remained at higher levels than before lockdown in NZ.  

Technology has been a growth industry for years, with developments in artificial intelligence, block chain, communications technology, autonomous vehicles, media streaming, cloud storage and security, and software as a service.  Technology share prices can be a bit “boom or bust” although they have been less so since the big tech bust of 2008.

 In my opinion, it is quite possible that a lot of the companies listed on the NASDAQ will perform strongly over the next few years. 

Janet Natta is a financial adviser and director of Smart Money Advice, offering investment portfolio construction and management services to clients throughout NZ, as well as comprehensive financial planning advice to assist clients to build and protect wealth to achieve their dreams.

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