While there is an index for the Nasdaq, the Nasdaq 100, investors tend to look at the Nasdaq National Market as a whole. Made up of close to 3,000 stocks, the Nasdaq is known for being a technology-heavy stock index, meaning lots of high-tech and biotech companies trade on the Nasdaq. In addition to tech stocks, lots of small-sized publicly traded companies list on the Nasdaq.
Paul Larson, an equities strategist at Chicago-based Morningstar Inc., says while it's broader than the Dow, it's a good indicator for only certain market sectors, not the overall market.
"In terms of small capitalization companies and tech, it's a bellwether," Larson says. Let's say you are investing only in tech stocks, how the Nasdaq is performing can give you an indication of how that sector is fairing. But if you are investing in oil companies, the Nasdaq won't be a good indicator of how that sector is doing.
Unlike the Dow, which is weighted by stock price, companies in the Nasdaq are weighted by size. That means companies such as Microsoft Corp., Google Inc. and Apple Inc. are going to get a heavier weighted value then small-cap stocks that trade for $1 per share.