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What’s this video about?

In this edition of Market Share, Paul Gifford, Chief Investment Officer at First Source Bank, sits down with Matt Noll, a Senior Portfolio Manager. They discuss the recent strength in the equity markets, focusing on the similarities and differences between the three major U.S. equity indices: the Dow Jones Industrial Average (Dow), S&P 500, and Nasdaq Composite. This discussion is essential for anyone following the latest US stock market news.

Major U.S. Equity Indices Performance

Matt highlights the strong performance of the U.S. equity markets across the board. Whether it’s the tech-focused Nasdaq, the industrial-heavy Dow Jones, or the broad-based S&P 500, each index has shown impressive gains. However, their performance has varied over different time periods, which is a significant point in recent US stock market news.

Year-to-Date Performance:

  • S&P 500: Up 14.7%
  • Nasdaq: Up 15.7%
  • Dow Jones: Up 7.8%

The differences are partly due to the weighting of the technology sector, which has been a strong performer. The S&P 500 and Nasdaq have higher tech weightings compared to the Dow Jones, which has more value-based stocks that haven’t performed as well. This is a crucial factor in understanding current US stock market news trends.

Ten-Year Performance: Looking back a decade, we see even more significant differences:

  • Nasdaq: Up 291%
  • S&P 500: Up 177%
  • Dow Jones: Up 140%

The divergence became particularly noticeable near the end of the pandemic, as technology stocks surged, boosting the Nasdaq’s performance. Such long-term trends are often highlighted in US stock market news.

U.S. Equity Indices Differences

The three major indices represent a large part of the U.S. economy but differ significantly in their compositions and sector weightings. The Dow Jones is dominated by large industrial companies, with United Health Group, a major healthcare company, making up almost 10% of the index. This focus on industrial and healthcare stocks contrasts with the tech-heavy nature of the S&P 500 and Nasdaq.

The S&P 500 is led by technology giants like Microsoft and Apple, which hold weightings of 7% and 6.9% respectively. These tech companies, often called the “magnificent 7,” are driving much of the S&P 500’s returns. This index is more diversified, containing around 502 stocks from various sectors, but its performance is still heavily influenced by its tech components.

The Nasdaq Composite is even more tech-heavy than the S&P 500, with Microsoft and Apple making up 8.5% and 9% of the index respectively. The Nasdaq excludes financial companies entirely, making it unique among the three indices. Its higher concentration in technology stocks explains its significant performance differences, especially in recent years.

Sector Weightings

Sector weightings also create performance differences among the indices. The Dow Jones has a higher concentration in financials, with 22.7% of its weight in this sector, compared to 13% for the S&P 500 and none for the Nasdaq. In contrast, the technology sector makes up 19.6% of the Dow, 31.25% of the S&P 500, and a substantial 51.5% of the Nasdaq. These differences in sector weightings can lead to different performance outcomes, depending on how specific sectors perform.

Revenue by Country

Revenue by country further differentiates these indices. The Dow and S&P 500 are more U.S.-focused, with most of their companies operating primarily in the domestic market. The Nasdaq, however, has greater exposure to China, with revenues from mainland China and Taiwan making up 15% or more of the index. This higher reliance on international markets introduces greater geopolitical risk, which can impact performance compared to the more domestically focused Dow and S&P 500.

Conclusion

Understanding the differences among market indices is crucial. Paul and Matt emphasize the importance of considering these differences and maintaining a diversified approach when incorporating them into your portfolio.

Check out the full video for a closer look at these key trends. For more insights and expert tips, subscribe to Market Share and explore the world of finance with us.

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