Why I Pay More Attention To Nasdaq Composite Index

stock market

Last Updated on September 20, 2022 by Ruddy Gunawan

There are a lot of stock market indices that analysts and traders often follow, with the Nasdaq Composite being one of the top three most-followed indices in the United States (the other two are Dow Jones Industrial Average and S&P 500).

So, why does Nasdaq Composite matter the most to me compared to the other indices? And why do I use it as a benchmark for everything else, including the crypto market?

Nasdaq Composite – Explained

Before we get to answer the question “why,” first of all, we need to know what Nasdaq Composite is in the first place; in layman’s terms, the Nasdaq Composite index is a market capitalization-weighted index of over 3,700 stocks that you can find on the Nasdaq stock exchange. 

People often see the Nasdaq Composite Index as the benchmark of tech stock performance. Over 40% of the index weight comes from heavyweight tech companies, such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and other well-known tech companies in the United States.

Nasdaq Composite is basically how you check the performance of the tech companies that everybody knows.

Why Does It Matter?

Now we get to the more juicy part. So, why does Nasdaq Composite matter more? Here is the thing. If you ask any non-American whether they know any top American companies outside the big tech companies, they probably can only say three or four names. 

However, almost all of them know Google, Amazon, Facebook, Instagram, Microsoft, Apple, and other big tech companies. In fact, U.S. tech companies literally dominate the world when it comes to the internet and hardware.

This is why I pay more attention to the Nasdaq Composite index compared to other indices. And if you pay even closer attention, you’ll realize that the Nasdaq Composite decides the direction of the crypto market. The crypto market, however, is not always correlated with S&P 500 or Dow Jones Industrial Average. It is much more correlated to the Nasdaq Composite index.

The easiest explanation is simply because both of them are tech-related (both crypto and Nasdaq Composite), but you can also say because both of them are “internationally used” since there are plenty of crypto users everywhere and there are plenty of Apple/Microsoft/Google/Facebook users everywhere as well.

This is why the Nasdaq Composite index matters the most for traders who trade both stock and crypto.

Where Is The Nasdaq Composite Index Heading Now?

nasdaq composite chart

Now here comes the most speculative question, where is the Nasdaq composite index heading now? This is perhaps more of a macroeconomic-related question than anything else. 

The CPI gained 8.3% year-over-year in August, which is slower than the previous release, 8.5%, but still higher than the 8.1% expectation. We might see the Fed rate the interest rates by 75 bps or 100 bps, and this might definitely affect the Nasdaq Composite index in a very volatile way. While some analysts claim that 75 bps would actually help the index to recover (since it has been priced in), to be honest, nobody really knows.

One thing that I believe in is the fact that we are near the market bottom (or maybe we even have bottomed out already). Let’s see if my gut is correct, but as usual, this is not financial advice. As long as the world economy is still in very bad shape, we might not see any bull run anytime soon.

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