How the Dow and the Nasdaq Are Built, Weighted and Why They Move Differently

The Dow Jones Industrial Average tracks 30 established US blue-chip companies across many industries and weights them by share price. The Nasdaq Composite tracks more than 3,000 stocks listed on the Nasdaq exchange and weights them by market value, which makes it far broader in number but heavily concentrated in technology and fast-growing companies.

In simple terms, the Dow is a small, hand-picked group of household names, while the Nasdaq is an entire stock exchange measured as one number. That difference in size, sector mix and weighting is why the two can move very differently, especially when technology stocks are booming or falling sharply.

This guide explains what each index holds, how each is calculated, how they have behaved in past market cycles, why the Dow now includes some Nasdaq companies, and the funds investors use to track each one. FRC has no relationship with any fund or index provider mentioned and earns no commission from any investment.

Prefer to watch? FRC’s fact-checked investing playlist on YouTube covers the funds that track these indexes, including QQQ.

The Dow Is an Index; Nasdaq Is Also an Exchange

The first difference is easy to miss. The Dow is only an index, a measuring tool maintained by S&P Dow Jones Indices, while Nasdaq is also a stock exchange, the marketplace where thousands of companies list and trade their shares.

When people say “the Nasdaq rose today,” they usually mean the Nasdaq Composite index, which measures every stock listed on that exchange. Investors who buy “the Nasdaq” through a fund usually mean the Nasdaq-100, a separate index of 100 of the largest non-financial companies on the exchange.

The Dow is different again. Its 30 members are chosen by a committee and can be listed on either the New York Stock Exchange or Nasdaq.

Build the Knowledge Behind the Headlines

Understanding how each index is built is the first step to understanding the funds that track them. FRC’s ETF Investing for Beginners course explains how indexes, index funds and ETFs work, from construction to pricing and taxes.

If you are preparing for a career in finance, the difference between price-weighted and market-value-weighted indexes is regular exam material. The SIE Examination Preparation course covers market indexes and exchanges as part of the exam you can pass before you are hired, and the Series 65 Exam Preparation course covers how advisers choose an appropriate benchmark.

FRC’s programs and memberships are open to everyone, and every course can be spread across interest-free monthly payments. The same foundations apply whether you are investing your own money or advising others.

What the Dow Holds

The Dow Jones Industrial Average was first published in 1896 with 12 companies and has tracked 30 since 1928. Today’s members are large, well-established US companies with strong reputations, spread across technology, healthcare, finance, consumer goods, industrials and energy.

The committee chooses members by judgment rather than fixed numerical rules, looking for companies with sustained growth and wide investor interest. Changes are infrequent, and the index aims to represent the broad US economy rather than any single sector.

Because it holds only 30 companies, the Dow is a narrow snapshot. It leaves out thousands of mid-sized and smaller businesses, and its sector mix can shift noticeably with a single change.

What the Nasdaq Composite Holds

The Nasdaq Composite was launched on February 5, 1971, with a starting value of 100. It includes almost every stock listed on the Nasdaq exchange, more than 3,000 companies of every size, including many foreign companies with Nasdaq listings.

The exchange has long attracted technology companies, so the Composite is dominated by them, alongside biotechnology, communication services and consumer businesses. It also includes thousands of smaller and younger firms, many of which are not yet profitable.

That breadth in number does not translate into balance by sector. Because the Composite is weighted by market value, its largest technology companies drive most of its moves.

How Each Index Is Calculated

The Dow is price-weighted. The share prices of its 30 members are added together and divided by the Dow divisor, so a company with a higher share price has more influence, regardless of how large the business actually is.

The Nasdaq Composite is weighted by market capitalization, the share price multiplied by the number of shares outstanding. The largest companies by value count the most, whatever their share price.

That leads to very different results. A $1 move in any Dow stock moves the Dow by the same number of points, while in the Nasdaq a 1% move in a trillion-dollar company has far more effect than a 1% move in a small company.

How Companies Join and Leave Each Index

Joining the Dow is a rare event decided by committee. A company is added only when another is removed, and the committee weighs reputation, growth, sector balance and share price before making a change.

Joining the Nasdaq Composite is close to automatic. When a company lists its common stock on the Nasdaq exchange, it generally becomes part of the Composite, and when it delists or moves to another exchange, it leaves.

That is why the Composite changes constantly, with new listings, mergers and delistings throughout the year, while the Dow may go years with only a handful of changes.

A Worked Example: One Day, Two Results

Imagine a day when the largest technology companies fall sharply on worries about interest rates, while banks and healthcare companies rise. The Nasdaq Composite, dominated by technology, could fall by more than 2%.

The Dow, with only a few technology members among its 30 and weights set by share price, could rise on the same day, lifted by its financial and healthcare stocks.

Both results are accurate. They measure different groups of companies in different ways, which is why a single headline about “the market” can hide very different experiences for different investors.

Why the Dow Now Includes Nasdaq Companies

For most of its history, the Dow held only companies listed on the New York Stock Exchange. That changed on November 1, 1999, when Microsoft and Intel became the first Nasdaq-listed companies added to the index.

Since then, several of the largest Nasdaq companies have joined, including Apple in 2015 and both Amazon and Nvidia in 2024. Today the Dow includes a number of Nasdaq-listed technology giants alongside its traditional blue chips.

That overlap means the two indexes share some of their most important names. But in the Dow those companies are just a handful of 30 members weighted by share price, while in the Nasdaq they sit at the top of a market-value-weighted list of thousands.

Sector Mix: Blue Chips vs Technology

The Dow’s 30 members are spread deliberately across the economy, including banks, healthcare companies, industrial manufacturers, consumer brands and technology firms. No single sector is meant to dominate it.

The Nasdaq Composite is the opposite. Technology and related sectors make up the bulk of its value, and financial companies are a much smaller share than in the broader market.

That is why the two often react differently to the same news. Rising interest rates, a slowdown in technology spending or a surge in enthusiasm for artificial intelligence can move the Nasdaq sharply while the Dow moves far less.

How They Have Behaved in Past Market Cycles

The dot-com crash shows the gap most clearly. From its peak in January 2000 to its low in October 2002, the Dow fell by about 38%, while the Nasdaq Composite fell about 78% from its March 2000 peak.

In 2022, when rising interest rates hit technology and growth stocks hard, the Nasdaq Composite fell about a third over the calendar year, while the Dow fell by less than 10%. In strong years for technology, the reverse has often been true, with the Nasdaq rising far faster than the Dow.

Past results do not predict future ones. But they show a consistent pattern: the Nasdaq has tended to swing much further in both directions.

Why the Nasdaq Is More Volatile

Concentration is the main reason. When most of an index’s value sits in one area of the market, anything that affects that area moves the whole index.

Growth companies are also especially sensitive to interest rates, because much of their value depends on profits expected far in the future. When rates rise, those future profits are worth less today, which tends to hit the Nasdaq harder than the Dow.

The Dow’s mix of mature, profitable companies across many sectors tends to cushion it. That does not make it safe, but it usually makes its moves less extreme.

Dividends and Income

Many Dow members are mature companies that pay regular dividends, including banks, healthcare companies, consumer goods businesses and energy producers. That gives the Dow a stronger income profile than the Nasdaq.

Many Nasdaq companies, particularly younger technology and biotechnology firms, pay small dividends or none at all, preferring to reinvest their profits in growth. More of the Nasdaq’s return has therefore come from rising share prices.

For investors, that shapes the type of return each index delivers. Always check a fund’s current distribution history on the fund’s own website rather than relying on past figures.

Read Percentages, Not Points

The Dow trades at a far higher number than the Nasdaq Composite, so its moves look much bigger in points. A 400-point fall in the Dow can be a smaller percentage move than a 200-point fall in the Nasdaq.

That is why comparing the two in points is misleading. A 1% move is a 1% move in either index, and percentages are the only fair way to compare them.

The level of each index also says nothing about its size or quality. It reflects where each one started and how it is calculated.

What Stock Splits Do to Each Index

When a company splits its stock, it issues more shares at a lower price without changing the value of the business. In the Nasdaq, a split has no effect on the company’s weight, because its market value is unchanged.

In the Dow, a split cuts the company’s share price, so its influence on the index falls immediately. The divisor is adjusted so the index level does not jump, but the company counts for less from that point on.

That quirk has shaped the Dow’s membership. High-priced Nasdaq giants have often joined only after splitting their stock, as Amazon did in 2024 after a twenty-for-one split in 2022.

Price Return vs Total Return

The index levels quoted in the news are price indexes. They track share prices only and leave out the dividends companies pay to shareholders.

Because Dow members tend to pay more in dividends, the gap between the Dow’s price return and its total return, which assumes dividends are reinvested, is usually wider than the Nasdaq’s. Comparing the two on price alone can understate what Dow investors have actually earned.

When comparing a fund’s results with its index, use the total return version. That is the fairer measure of what an investor who reinvested every dividend would have received.

How to Invest in Each Index

Investors track these indexes through ETFs and index funds rather than buying the index itself. For the Dow, the SPDR Dow Jones Industrial Average ETF Trust (DIA) is the most widely held fund, and it pays distributions monthly.

For the Nasdaq, the most popular funds track the Nasdaq-100 rather than the Composite, including the Invesco QQQ (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). The Fidelity Nasdaq Composite Index ETF (ONEQ) tracks the broader Composite.

Costs and trading volume vary between funds, so always check the current expense ratio and holdings on the fund’s own website. FRC’s comparison of VOO vs VTI vs QQQ explains how three of the most popular funds differ.

How Each One Fits Alongside the S&P 500

Neither the Dow nor the Nasdaq is the main benchmark professionals use for US stocks; that role belongs to the S&P 500, which tracks about 500 large companies across every sector. Each of the two sits on a different side of it.

The Dow is narrower than the S&P 500 but similarly spread across sectors. The Nasdaq is concentrated in technology and growth, so it tends to be more volatile than the S&P 500.

FRC’s guides to the Dow Jones vs the S&P 500 and the S&P 500 vs the Nasdaq explain each of those comparisons in detail.

Comparing the Two Indexes

The table below summarizes the main differences.

What the Exams Test

The SIE and the Series 65 both test index construction. Expect questions asking which index is price-weighted, which is the Dow, and how a stock split affects a price-weighted index.

The SIE also tests the difference between exchanges and indexes. Nasdaq is both a stock exchange and the name of the indexes built from its listings, while the Dow is only an index.

On the Series 65, benchmark questions follow. A portfolio concentrated in technology and growth companies might be measured against a Nasdaq index, while a diversified portfolio of large US stocks is usually measured against the S&P 500.

Show What You Know

If you are building a career in finance, the ability to explain indexes, exchanges and benchmarks is exactly the kind of knowledge employers expect. FRC’s Professional Membership lets you show it, not just claim it.

A QR code on your resume takes an employer to your verified Digital Profile, with your credentials, your exam progress and a short Video Resume in your own voice. You give them a fuller picture of who you are, and they spend less time checking claims.

Common Questions

Is the Nasdaq riskier than the Dow? The Nasdaq has historically been far more volatile, because it is concentrated in technology and growth companies. In the dot-com crash, the Nasdaq Composite fell about 78%, while the Dow fell about 38%.

Are Nasdaq companies in the Dow? Some are. Microsoft and Intel became the first Nasdaq-listed Dow members in 1999, and companies such as Apple, Amazon and Nvidia have joined since.

Why does the Dow have a higher number than the Nasdaq? Because the Dow adds up 30 share prices and divides by a divisor well below one, which produces a large figure. The level reflects the calculation, not the size of the index.

Is the Nasdaq the same as the Nasdaq-100? No. The Nasdaq Composite includes more than 3,000 Nasdaq-listed stocks, while the Nasdaq-100 includes 100 of the largest non-financial companies on the exchange.

Which pays more in dividends, the Dow or the Nasdaq? The Dow has typically had a stronger dividend profile, because more of its members are mature, dividend-paying companies, while many Nasdaq companies pay little or nothing.

Your Next Step

The Dow tracks 30 established blue-chip companies weighted by share price. The Nasdaq Composite tracks more than 3,000 Nasdaq-listed stocks weighted by market value, dominated by technology and growth companies that tend to swing further in both directions.

Before choosing a fund that tracks either one, look at what it holds, how concentrated it is and how you would feel holding it through a sharp fall. Then decide which fits your own plan.