Investing in the Nasdaq: What to consider

The Nasdaq 100 index is composed of the 100 largest companies in the US, excluding the financial sector. The allocation of stocks within the index is proportionate to company size, therefore, some companies have more effect over the index. Since many of the largest companies operate within the tech sector, such as Apple and Google’s parent company Alphabet, it is sometimes considered a barometer of the industry’s overall health. This relationship works both ways, since sometimes a significant spike in a single company’s stock price could lift the Nasdaq price as a whole.

The Nasdaq index is a hybrid of sorts. On the one hand, it could be affected by events relating to the American economy, such as changes in legislation, interest rates, or a certain administration’s financial policies. On the other, it could also be affected by trends relating to a specific sector, or even a single company - such as the aforementioned example regarding the tech sector. Hence, when investing in the Nasdaq, it is important to pay attention to both sides of the equation. Events such as the Fed’s rate decision or the NFP report could affect it, alongside earnings reports released by major American companies.

Generally speaking, indices are considered more stable than individual stocks. Since their diversified components could hedge against risk, a significant change in one company’s stock price might affect the index as a whole - but in a relatively moderate way. From a trading standpoint, since the global financial crash of 2008, the Nasdaq Index has been steadily climbing, therefore, investing in the Nasdaq as part of a diversified portfolio could add more stability to it.