The Nasdaq 100 vs the S&P 500 vs The Dow Jones Industrial Average. Which one comes out on top historically and where will the strongest gains be seen in the coming years? As an investor you’ll want to know which index will outperform the rest. In 2022, both the Nasdaq-100 and the S&P 500 experienced negative returns, with the Nasdaq-100 down 33% and the S&P 500 down 18%. Has the Nasdaq ever outperformed the S&P 500 or Dow Jones, and what are the chances it will in the next decade?
The S&P 500, Nasdaq 100, and Dow Jones (DJIA) are three important indices in the U.S. These stock market indices play a crucial role for investors as they provide an overall picture of the performance of a group of stocks. The question is, which stocks and index should you track? Stock market indices play a crucial role for investors as they make it easier to track and compare market trends. With numerous stocks listed on the market, indices help investors gauge the health of specific sectors or the economy as a whole. It’s essential to understand their makeups and the sectors they represent.
Disclaimer: This is not financial advice and you are responsible for your own investment decisions. When investing capital is at risk. This article may contain affiliate links.
S&P 500 vs Nasdaq 100 vs Dow Jones Industrial Average
The S&P 500 represents approximately 80-85% of the U.S. stock market and consists of around 500 major companies. This includes tech giants like Apple, Amazon, and Google. It serves as a benchmark for the overall market and is widely used as a reference for other investments. While the Nasdaq Composite includes nearly all securities traded on the Nasdaq Stock Market, with a strong focus on tech companies. On the other hand, the DJIA tracks 30 “blue-chip” companies in various industries except transportation and utilities. This includes well-known names like American Express and Coca-Cola.
The indices function differently in terms of stock selection and weighting. The S&P 500 and Nasdaq 100 are weighted by market cap, reflecting the companies’ total value, whereas the Dow is a price-weighted index, with stocks’ weights determined by their individual stock prices. The choice of index for investment depends on investors’ goals, risk tolerance, and strategies.
The S&P 500 provides broad exposure to various industries, making it suitable for diversified portfolios. The Nasdaq 100 is ideal for those seeking exposure to the tech sector, while the Dow is favoured by investors looking for stable, well-established companies. It all comes down to dividends, diversity and growth.
Read: 3 Reasons Why The FTSE Global All Cap Index Is Better Than S&P 500
The Nasdaq Vs The S&P 500 Performance
When it comes to investing, understanding the historical performance of different indices is crucial for making informed decisions. Two popular indices that often come into the spotlight are the Nasdaq 100 and the S&P 500. Both indices have shown remarkable growth over the years, but they differ in their returns and volatility.
The NASDAQ 100 index should is not to be confused with the Nasdaq composite. The Nasdaq 100 collection of 100 stocks in a range of sectors, including industrial, technology, retail, telecommunication, biotechnology, healthcare, transport, media and service companies. When we’re talking about the Nasdaq 100 we’re traditionally talking about a tech focused index.
Nasdaq 100’s Slightly Higher Returns Than The S&P 500
Since 1972, both the Nasdaq 100 and the S&P 500 have delivered impressive annual returns, providing investors with attractive opportunities to grow their wealth. Since 1972 (to 2022) S&P 500 with slightly higher annual returns of 14.55%, compared to the S&P 500’s 11.87%. Over these modest gains would have compounded up.
In the past 10 years the Nasdaq 100 has beaten the S&P 500 with a 3% advantage. In the periods before the 90s the S&P500 would have made for a better investment. Especially, between 1982 and 1986. Since then the Nasdaq 100 vs S&P 500 has come out on top in 5 in 7 of the 5-year periods.
| Period | S&P 500 | Nasdaq | Dow Jones |
|---|---|---|---|
| 1972-1976 | 8.66% | 2.06% | 5.92% |
| 1977-1981 | 13.32% | 12.98% | -6.59% |
| 1982-1986 | 19.00% | 8.90% | 16.58% |
| 1987-1991 | 15.31% | 22.24% | 6.32% |
| 1992-1996 | 19.94% | 20.04% | 17.34% |
| 1997-2001 | 14.73% | 23.86% | -6.83% |
| 2002-2006 | 8.35% | 11.44% | 3.40% |
| 2007-2011 | 10.14% | 8.94% | 9.18% |
| 2012-2016 | 19.98% | 16.96% | 13.20% |
| 2017-2021 | 20.12% | 23.07% | 9.14% |
Volatility: The Trade-off for Higher Returns
One of the primary reasons behind the Nasdaq 100’s higher returns vs the S&P500, lies in its heavy weighting in the technology sector. Technology companies, being at the forefront of innovation, often experience rapid growth and volatility. As a result, the Nasdaq 100 tends to be more volatile against the broader-based S&P 500.
Bull markets, characterized by sustained market optimism and rising stock prices. The Nasdaq 100 has historically outperformed the S&P 500 during these raging bull runs. For example, during the tech-boom of the 1990s and the recovery period after the 2008 financial crisis. Investors riding the wave of technological advancements and reaped the benefits of higher returns. You can see at it’s peak annual returns exceed 80%.
The flip side of this are the bear markets. During bear markets, when pessimism prevails, and stock prices decline .The S&P 500 has generally performed better during these periods than the Nasdaq 100. This was evident in bear markets such as 1973-1974, the early 2000s dot-com bubble burst, and the 2008 financial crisis. Where the more diversified nature of the S&P 500 provided better protection to investors’ capital. Again, in 2022 the S&P500 fell -18.01%, the Nasdaq 100 -32.97% but the Dow Jones by just -8.78%.
The Growth of $10,000 Investment: Nasdaq 100 vs. S&P 500
To illustrate the long-term impact of investing in these indices, let’s look at the growth of a £10,000 investment in both the Nasdaq 100, S&P 500 and Dow Jones from 1972 to 2017. During this period, the Nasdaq 100 investment would have grown to approximately £17,591,700, while the S&P 500 investment would have reached £15,543,900. Tracking the Dow would have returned £3,740,700.
Furthermore, a £10,000 investment in the Nasdaq 100 in 2002 would have grown to an impressive £64,369.13 by 2022 (at the time of writing). In contrast, the same investment in the S&P 500 would have amounted to just over £64,369.13. These figures show how the difference in returns between the Nasdaq and S&P 500 can vary by economic period.
Considering 10-Year Periods
To gain a deeper understanding of the long-term performance of both indices, we examined their average annual returns over every 10-year period since 1972. The results showed that the Nasdaq 100 outperformed the S&P 500 in 27 out of the 51 years. In the below groupings of 10 year periods, the Nasdaq also outperformed the S&P 500 in 4 of 5 periods.
| Period | S&P 500 | Nasdaq | Dow Jones |
|---|---|---|---|
| 1972-1981 | 8.62% | 6.84% | 2.47% |
| 1982-1991 | 13.90% | 13.98% | 9.90% |
| 1992-2001 | 15.18% | 23.31% | 9.24% |
| 2002-2011 | 3.53% | 7.75% | 1.46% |
| 2012-2021 | 16.56% | 19.13% | 10.87% |
Long-Term Investing In The Nasdaq 100 vs S&P 500 vs Dow Jones
However, the Nasdaq 100’s has historical trend of delivering higher returns over extended timeframes. Coming out on top over the time frame between 1972 and 2022. On the other hand, you can see how in 2022 both the Nasdaq 100 and S&P500 were down more than double the amount the Dow Jones fell.
This what that data looks like visualised into a graph, which shows you the rolling 10 year returns between 1972 and 2022. Once we control for the massive amount of volatility in any given year, the Nasdaq 100 actually comes out on top. Followed by the S&P 500. Those peaks in Nasdaq 100 performance, outweigh the troughs and crashes over 10 year periods.
20 Year Periods Of Investing: Nasdaq 100 vs S&P 500
The Nasdaq demonstrated strong performance compared to the S&P 500 and the Dow Jones in each of the four 20-year periods analyzed. It consistently achieved higher average annual returns. The Nasdaq’s outperformance can be attributed to its focus on technology and innovation-driven companies. Which often experienced rapid growth during these periods.
Over four distinct 20-year periods analyzed from 1972 to 2021, the Nasdaq consistently outperformed both the S&P 500 and the Dow Jones. The Nasdaq achieved an impressive average annual return of 14.34%. By contrast, the S&P 500, representing a broader range of companies across various sectors, achieved an average annual return of 10.96%.
The Dow Jones, composed primarily of established large companies, attained an average annual return of 7.95%. While all three indexes exhibited positive returns, the Nasdaq’s outperformance highlights its potential for higher growth compared to the more diversified S&P 500 and the stability-oriented Dow Jones.
| Period | S&P 500 | Nasdaq | Dow Jones |
|---|---|---|---|
| 1972-1991 | 13.10% | 11.86% | 7.95% |
| 1982-2001 | 9.87% | 17.66% | 10.28% |
| 1992-2011 | 10.82% | 15.51% | 8.09% |
| 2002-2021 | 10.04% | 13.44% | 6.42% |
| 2003-2022 | 10.48% | 13.34% | 6.52% |
Where Will Stocks Go Next: Nasdaq 100 vs S&P 500 vs Dow Jones
These indices differ in their calculation methodologies and the types of companies included. The Dow assigns greater weight to stocks with higher per-share prices, while the S&P 500 and Nasdaq 100 are weighted based on market cap. The S&P 500 represents a broader range of companies, while the Nasdaq 100 is tech-heavy, and the Dow focuses on blue-chip firms.
As an investor, understanding these indices can help in monitoring market trends, but decisions should not be solely based on daily index movements. Proper due diligence and research are necessary before making investment choices. In also depends on where you want to hedge your bets. If you think technology and artificial intelligence will drive growth in U.S. markets, then the Nasdaq could be the favourable option.
Just in the past year alone, you can see how the Nasdaq 100 crashed but rebounded. Supercharged by the Artificial intelligence stock boom, which sent stocks soaring. Year to date, the Nasdaq 100 is up 32.65% . Tech stocks and the blue-chip S&P 500 index have since been buoyed by breakthroughs in generative AI – led by the ChatGPT chatbot. The S&P 500 is also up 10.84% year to date, with the promise of a new era of growth for the sector. The Nasdaq Composite is also up 25.93%. Meanwhile the Dow Jones is up just 0.8% year to date.
Future Prospects: Nasdaq 100 vs S&P500 vs Dow Jones
Tech stocks tend to be growth stocks and can trade at higher valuations. This makes them more sensitive to changes in investor sentiment. Their performance can be influenced by factors like interest rate hikes, inflation, and global economic conditions. In 2022, all three indices experienced negative returns due to various factors such as inflation concerns, interest rate hikes by the US Federal Reserve, and geopolitical tensions.
The tech-heavy Nasdaq 100 suffered more significant losses than the S&P 500. As investors turned to old economy and value stocks amid a sell-off in high-flying tech stocks. Forecasting the performance of these indices for 2023 is challenging, given the uncertainty in the economic environment. While the Nasdaq 100 may continue to outperform during an economic recovery and low-interest rate environment, the S&P 500’s diversity could help it perform better during an economic downturn.
On the other hand, the surge in Artificial technology and by products of this revolution, may drive the Nasdaq 100 to new all time highs. Therefore, it is a question to investors are to high much they want to niche down in this traditionally tech heavy index. This is not to say that the S&P 500 won’t also benefit from advances in technology.
Read: Everybody Recommends The FTSE Global All Cap But Is This The Best Portfolio Choice?
Conclusion: Nasdaq 100 Vs S&P 500 vs Dow Jones IA
The conclusion is that the choice between the Nasdaq 100 and the S&P 500 depends on the investor’s risk tolerance and time horizon. The Nasdaq 100’s higher volatility may make it more suitable for investors with a long time horizon who can tolerate the ups and downs, while the S&P 500 may be preferred by investors seeking more stability. Ultimately, both indices have historically performed well over long investment horizons, so the key is to remain patient and avoid trying to time the market. The Dow Jones, may provide a basket of stocks for consistent dividends, with stocks that have consistently played at the top.
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When investing capital is at risk.
Further Resources & Data Sources:
- S&P 500 data is sourced from stern.nyu.edu. The returns from the S&P 500 in the above article use the S&P 500 returns including dividends.
- The Nasdaq 100 data is sourced from Forecast-Chart.com for 1972 to 2018.
- The Nasdaq 100 data for 2018 to 2023 is sourced from Slickcharts.com
- The Dow Jones data is sourced from Macro Trends – Dow Jones – DJIA – 100 Year Historical Chart.
- Slickcharts.com was also used for some 2022 and 2023 data.
