Currently, the Nasdaq 100 stocks are trading at all-time highs, which is good news for investors. But, there is still some downside risk to be considered.
All-time peak
During the last three months, Nasdaq 100 stocks have rallied to an all-time high. Although there are still gaps to fill, it appears that the market has a long way to go. If the US can avoid a recession, then the valuations of these stocks should be sane again.
The NASDAQ-100 index is made up of the 100 largest non-financial companies listed on the Nasdaq stock exchange. This index tracks innovation, growth and diversity.
The index was first introduced in 1985. It was launched at a base price of 250 points. Then, the base was reset to 125 points when the following year started. Throughout the late 1990s, the NASDAQ-100 index soars to all-time highs. Then, it crashed.
The stock market was hit hard by the attacks of 9/11. The Federal Reserve began an aggressive campaign of interest rate increases. During this time, tech stocks have been particularly sensitive to rising rates. During the first month of an increase, most pain is felt.
All-time low
During the late 1990s, the NASDAQ-100 (r) index hit a record high. This marked the peak of the Dot Com Bubble. However, a series of routs followed as investors fled high-growth stocks. Several factors contributed to the tech bubble’s demise.
In 1999, the NASDAQ-100 traded at 73 times earnings. It was the first time in history that the index reached this value. The base price was set at 250 points when the index was launched. It was reset to 125 points the following year.
After the election of Donald Trump, the NASDAQ-100 index recovered and rallied. It took over 400 trading sessions to re-gain its footing. The market is now 29% below its all-time high.
During the late 1990s, the NYSE and NASDAQ both made strict rules for companies to be listed on their indices. They needed to be in good standing and have a daily average volume of 200,000 shares. It was also important that they weren’t involved in bankruptcy proceedings.
Main constituents
Investing in Nasdaq 100 is a great way to gain exposure to innovative companies in the United States and around the world. These companies are primarily technology companies, but they also include banking, insurance and brokerage firms. Combined, they account for more than half of the index’s weight.
NASDAQ 100 stocks are chosen based on a number of factors, including market capitalization, liquidity and sector representation. They also must meet certain requirements. For example, they must be listed on the NYSE or NASDAQ for at least three months. They must also have an average daily trading volume of at least 200,000 shares.
The largest constituents of the index are tech giants Apple, Microsoft and Alphabet. Other notable names include Adobe, Amazon, Cisco and NVIDIA.
The NASDAQ 100 stocks are rebalanced every quarter. When they are rebalanced, new firms are added to replace old ones. As of the end of 2014, the index had 107 components.
Rebalanced every two weeks
Investing in the Nasdaq-100 Index is not your typical stock index. The index focuses on the 100 largest companies by market capitalization. The index is heavily weighted in the technology sector. This may have an effect on the index’s performance.
The NASDAQ-100 Index has daily return volatility of 28.6 percent from 1985 to 2008. This is higher than the S&P 500(r)’s 18.3 percent. This index is also the narrower of the two. It tracks the 100 largest non-financial companies on the Nasdaq Stock Market. The largest component stocks have the biggest impact on the value of the index.
Rebalancing can reduce the difference between an investor’s realized return and the fund’s return. It can also increase returns depending on how volatile the markets are. Rebalancing is a process that involves determining the holdings and bond allocations in a portfolio. It can be used to minimize the impact of timing luck, which can affect millions of dollars.
Downside risk
Investing in Nasdaq 100 stocks may not be right for everyone. This is because the index has more volatility than the S&P 500.
The S&P 500 consists of a broader range of companies. Specifically, it includes companies in the technology, energy, and financial industries. The index also includes consumer discretionary, retail, health care, and materials.
The Nasdaq 100 is dominated by global tech majors. It has outperformed the S&P 500 by a large margin. Over the past 15 years, the index has delivered a CAGR of around 16%. The S&P 500 has averaged a 10-year return of 5%. However, the S&P 500 has experienced a correction in 2008, which caused it to fall by 38%.
The S&P 500 is a large-cap heavy index. It has a lower allocation than the Nasdaq 100.
