Is The Nasdaq A Safer Investment Than The Dow?

As Q1 2020 finally comes to an end, investors will be asking themselves many questions, including why the Nasdaq performed better than the S&P and Dow?

We’ve had a potential World War III, raging wildfires, swarms of locusts in Africa, and a deadly pandemic that is still sweeping the globe. I’ve been forced into isolation with my family, which quickly lost its novelty, and my favorite soccer team is likely not going to win the league, as it will be canceled. 

This has been the single longest quarter of many of our lives! But, in the wise words of Rihanna’s 2008 hit ‘Take a Bow’: “It’s over now”. 

As investors count their losses and plan ahead for the next quarter, one interesting revelation is made; the Nasdaq (NYSEARCA: QQQ) fared quite a bit better during all this turmoil than the other two major indices, most notably the Dow Jones Industrial Average (NYSEARCA: DIA). 

How did the Dow do this quarter?

To round off a miserable quarter, the Dow fell 410 points late in the day to end the first quarter at 21,917.16 points: 23.2% off its all-time high in January. This late decline made it the worst since the fourth quarter of 1987 when the infamous ‘Black Monday’ occurred. 

The Dow is made up of 30 large-cap companies on U.S. stock exchanges, and is a widely-watched benchmark index in the U.S. for blue-chip stocks. In the first three months of the year, only one of those 30 stocks rose — Microsoft (NASDAQ: MSFT). The worst part is that its share price actually only rose by $0.01 between December 31 and March 31. 


What about the S&P 500?

The S&P 500 (NYSEARCA: VOO) is a collection of the top 500 large-cap U.S. companies. It fared a bit better than its Dow counterpart, but still entered bear market territory with a 20% drop; its worst quarterly performance since the Great Recession. 

There was some good news though, as 30 of those 500 companies did, in fact, come out of Q1 2020 stronger than when they went in. Among the top performers were: Regeneron Pharmaceuticals Inc. (NASDAQ: REGN), which rose 30% in the last 3 months; Citrix Systems (NASDAQ: CTXS) — up 27.6% — and MyWallSt favorite; Netflix (NASDAQ: NFLX) — up 16%. 

Some other big names included Amazon (NASDAQ: AMZN) and Activision Blizzard (NASDAQ: ATVI). However, Netflix will surely be delighted with its performance this quarter amidst a fight to stave off the challenge of Disney (NYSE: DIS), which has fallen an incredible 19% in the last month alone. It appears Netflix is one of the few stocks immune to the coronavirus.

The last bull standing, sort of…

That brings us to the only major index still avoiding bear market territory: the Nasdaq. The tech-heavy index fell ‘just’ 16%, compared to its counterparts, 4% shy of the infamous 20% ‘bear’ mark. However, it did fall below 20% at different times during the quarter, but let’s try to focus on the positives here.

Its performance is not surprising either when you examine the companies which encompass this index, generally technology and internet-related, with some biotech and industrial stocks thrown in for good measure. Among these companies is FAANG: Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Amazon, Netflix, and Google (NASDAQ: GOOG), otherwise known as ‘the biggest companies in the world’. Oh, and let’s not forget Microsoft…

These kinds of companies are less exposed to a downturn such as this because they often don’t produce physical products that rely on supply chains or manufacturing. Even Apple is no longer so reliant on the iPhone, and has its many services and subscriptions to fall back on. Software as a Service (SaaS) companies are also better able to weather the storm, with the likes of Zoom (NASDAQ: ZM) jumping 44% this month alone as people are forced to work from home. Big tech companies can pivot easier than those solely producing physical goods, and use their services as a safety net.

Even when all the cards are down and rules are out the window during a crisis such as this, technology is the reigning king on Wall Street. Although a 16% drop is nothing to celebrate, one must look for the small victories in these gloomy times. And not closing out one of the worst quarters on Wall Street in bear territory might just be the small victory that keeps investors going.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.