S&P 500 vs. Nasdaq 100

Updated: Aug 18, 2020

The Nasdaq 100 (QQQ) and the S&P 500 (SPY) indexes are built in the same fashion. These indexes are market-capitalization-weighted (market-cap). To calculate the market-cap, just multiply the number of shares outstanding by the stock price. Larger companies like Apple have a more significant impact on the index price level than smaller companies like Ford. Therefore, Apple stock increasing 10% has a greater impact on the index price than if Ford stock increased by 10%.

The S&P 500 represents the 500 largest US companies. The Nasdaq 100 consists of the 100 largest non-financial stocks traded on the Nasdaq exchange. It’s apparent from the chart below that the Nasdaq 100 is kicking the S&P 500 ASS this year.

The top 10 stocks in the S&P 500 make up 27.8% of the index. In comparison, the top 10 stocks in the Nasdaq makeup 56% of the index. The chart really speaks for itself if you look at year-to-date returns.

The Nasdaq 100 is loaded with tech companies and consumer cyclicals (EX: Amazon) which are the best performing sectors. COVID19 has pushed many investors into the tech companies as they are thriving in this environment and have mountains of cash or cash flow. For the most part the Nasdaq 100 also avoided the financial and energy sectors which have the worst performance for the year.

ETF of the Week: iShares EAFE (EFA)

The iShares EAFE (EFA) invest in developed international markets not including U.S. and Canada. It invests in Europe, Australia, Asia and Far East. International developed markets haven’t seen their markets recover like the US markets. This is partially due to the U.S. having a large percentage of the world’s technology-related companies. China also has a fair amount of tech companies; however, China is still considered a developing market so is not part of the fund.