Without a doubt, one of the most traded indices in the world is none other than the well-known, US NASDAQ. The real question many traders want to know is what moves NASDAQ and what is shaking this popular index.
To answer simply, this question is more complex than it seems. Multiple factors govern exactly how the NASDAQ index fluctuates.
To understand deeper, let’s touch upon what the NASDAQ is?
What is the NASDAQ?
What is the meaning of NASDAQ – basically an index made up of various stocks. It is a for-profit-based company that provides a platform for people to buy or sell public equity.
What is NASDAQ-100? The NASDAQ-100 is an index that follows non-financial companies which are traded on the NASDAQ market. These companies are weighed differently based on their capitalization potential, size, and some other factors.
To put it plainly, when a trader chooses to invest in the NASDAQ, he or she is investing and putting faith in the many public companies that make up the NASDAQ.
Read Also: How to Trade the NASDAQ
What moves NASDAQ?
How is NASDAQ-100 calculated?
NASDAQ-100 gives a large index value to 10 of the largest member companies. The influence of the top companies is limited by the process of index value calculation. This is a major factor that differentiates the NASDAQ-100 from other typical market capitalization and price-weighted indices.
It is natural to wonder what moves the stock market, however, there is no simple equation to figure out how the market will behave. That being said, there are still ways to predict a possible move to the Nasdaq index.
These are factors that can broadly be divided into three categories namely:
- fundamental factors;
- technical factors, and
- market sentiments.
The fundamental factors are based on the company’s profitability.
The technical factors are related to the company’s history like charts, past traders and investors, etc.
And lastly, the market sentiments are how people feel and perceive the markets overall.
These factors are not definite, i.e., the index itself is quite complex. However, after reading this article you will be at ease knowing that you understand what moves NASDAQ.
1. Share Prices
The individual share price moves the overall index and this is influenced by the weight given to each company. The index and weight are directly related. You can say that the index is a weighted average or collective of the share prices.
A rising NASDAQ-100 share price indicates a rising value of the index. Similarly, a decreasing share price indicates a decrease in the index value.
As mentioned above, the NASDAQ is a bit different from the classic indices, thus, with NASDAQ-100 company shares are weighed differently depending on the market.
If a high-weighted company’s shares like Amazon or Microsoft all rise in a day, then the index value will jump to a higher value as the influence of these companies on the index is greater. However, if the share price of all other companies drop on the same day, it is possible that the overall value will also plummet, the reason being the collective valuation of the shares.
2. Trader Sentiments
The fluctuation of index value depends on the fluctuation of underlying shares and these shares are partially influenced by traders’ sentiments. The traders’ attention and decisions can influence the stock market of the respective company.
For example, an announcement regarding projected growth can lead to a rise in stock price and controversy, or an allegation can lead to a fall in stock price.
Another way that the stock or share price rises are a trader’s attention. Buying or selling a large number of stocks can be enough to shake the market as it garners the attention of other traders as well.
Being a weighted index, a reasonable rise or fall in the stock price of a high-ranking company can move the entire index from one extreme to another.
3. Political Influence
Political uprisings or events of any sort can both favor, or disturb business activities. Accordingly, the index value of NASDAQ will also vary.
Any addition or deletion of the policy may directly or indirectly affect a company’s ability to perform its business tasks, and thus generate a profit or loss. This will impact the whole index if the component companies are all affected by the change in policy.
For example, if it is declared that a US-based company can no longer trade with a foreign country, this will reduce the market of the said company and negatively affect the business. In return, the stock prices will go down and the index value will follow (if the decrease is paramount).
What moves NASDAQ – Key Takeaways!
The NASDAQ is a complex yet reliable index system that is influenced by a variety of variables and cannot be accurately measured, but rather, can be predicted and approximated based on the liquidity, trends, demographics, news, earnings base, etc. which fall within the three factors discussed above; fundamental factors, technical factors, and market sentiments.
Depending on the nature of your goals and business, you can incorporate and prioritize several of these factors to increase your preparedness and elevate your trading strategy.