Today we are continuing our series of articles on the world's major stock exchanges. This time, we are going to talk about the NASDAQ, the world's second-most important stock exchange.
The NASDAQ's Place in the Global Economy
The NASDAQ is the world's second stock exchange (after the NYSE) by total market cap ($6.8T), the number of listed companies (3,200), and the monthly trading volume ($1.2T). There is, however, one key area where the NASDAQ holds the first place: the largest companies' market cap. Apple, Alphabet and Microsoft all have caps around $500B, which is more than any company on the NYSE. The market cap of each of these companies is comparable to the total market cap of such exchanges as the Moscow Stock Exchange. And if one takes the caps of the five largest companies on the NASDAQ together, it would be enough for it to be among the world's ten largest stock exchanges (even if all the other companies were to leave it).
The NASDAQ's ‘face’ are the young high-tech companies working in such fields as information technology, biotechnology, alternative energy, and so on. Here are some other companies that trade their stocks on the NASDAQ: Texas Instruments, Starbucks, Mobile TeleSystems, Cisco, Electronic Arts, PayPal, Yandex.
The NASDAQ's building. The NYSE's address is known throughout the world, but few people can remember the NASDAQ's address. Many of them would be surprised that it is located on Broadway, which is not a street that brings ‘stock exchange’ to the mind.
While the world's first stock exchange, the NYSE, was founded in 1792, the NASDAQ is a relatively young stock exchange. It was opened in 1971 as an accessible alternative to the NYSE for the more “modest” shares that were previously traded over-the-counter (regulated by an association of over-the-counter brokers called the National Association of Securities Dealers, or the NASD). As soon as the NASDAQ opened, it started to aim for the top. Specifically, it aimed to use information technology to simplify the trading process and enable more deals to be made in a given amount of time than was possible before.
The NASDAQ built itself a reputation of a high-tech exchange for high-tech companies. Its popularity grew the quickest in the 1990s. The emergence of the Internet and the success of the companies that specialized in it led to paradoxical consequences. Even those people who hardly know anything about economics have likely heard of the ‘dot-com bubble’ in 1999-2000. In the late 1990s, companies like Amazon.com, Pets.com, Cisco, eBay.com and others had their shares go up in price by several orders of magnitude. The NASDAQ Composite index (proportional to the total market cap of all the NASDAQ companies) exceeded 5000 points, which was unheard of at the time, but dropped very quickly shortly afterwards.
It was not just the NASDAQ that was shaken by the dot-com bubble, but the US economy as a whole. However, the NASDAQ Composite graph shows it more clearly than the S&P 500 index for the whole market.
NASDAQ Composite index graph. The sharp spike at the 1999-2000 mark shows the dot-com bubble. Its brief record – 5000 points – was only beaten in 2015.
S&P 500 index graph. It is proportional to the total market cap of the United States' 500 largest from different sectors of the economy, from different exchanges. The dot-com bubble is not as pronounced here, as companies from more traditional sectors of the industry did not participate in it. 2000's record was already beaten in 2007 (during the “real estate bubble”), and currently S&P 500 is already much higher than in those years.
Interestingly, some of the companies responsible for the bubble (such as Pets.com) went bankrupt shortly afterwards, but some of them not only remained in business, but far exceeded their previous price records (such as Amazon.com). In early 1998 Amazon.com's shares cost $5, in late 1999 they cost $106, in late 2001 they cost $10, and now they cost over $700. Ultimately, the IT business continues growing, and the NASDAQ rose quite quickly to the second place in the world's stock exchange rating, overtaking the London and Tokyo Stock Exchanges (the LSE and the TSE).
Because the NASDAQ grew from an over-the-counter stock market into a respectable and popular organization, its listing requirements became nearly as strict as those of the NYSE. As of now, it only admits companies that meet very high standards in earnings, market cap, and the number of shareholders.
In 2007 the NASDAQ merged with the OMX stock company that included eight stock exchanges from Northern Europe and Armenia, with a total market cap of $1.2T. The resulting NASDAQ OMX Group comprised nine exchanges with a total market cap of $8.0T. However, both the NASDAQ and OMX retained a great amount of autonomy, so each subsidiary deserves an article of its own. Today we are only going to talk about the NASDAQ.
What Investors Should Keep in Mind
The majority of stock brokers that grant DMA (as opposed to a CFD) to its clients also grant access to the NASDAQ. One can receive such access from EXANTE.
All the companies listed at the NASDAQ can be seen at the Stock Screener service at finance.google.com (choose ‘United States’ in the first box, and ‘NASDAQ Stock Market’ in the second). Let us see which companies are the first according to different criteria in this year.
As we have already said, the companies with the highest market caps are Apple (ticker symbol AAPL, market cap $576B), Alphabet (a Google-based holding company, ticker symbols GOOG and GOOGL, market cap $535B), and Microsoft (ticker symbol MSFT, market cap $445B). The highest 52-week price increase was shown by a relatively small alternative energy company Energy Recovery (ticker symbol ERII, market cap $620M, 52-week price increase 359%). The second place is held by the famous engineering company Advanced Micro Devices (ticker symbol AMD, market cap $5.8B, 52-week price increase 333%). It should be noted that both companies were founded quite a while ago, and their current price increase is a result of their recovery from internal crises that spanned many years.
Unlike the NYSE, no company on the NASDAQ has such grotesquely expensive shares as Warren Buffett's company. The most expensive shares cost around $1400 here. These shares belong to the Huntington Bancshares financial company (ticker symbol HBANP, market cap $7.9B), and Priceline Group, a gigantic tourism company (ticker symbol PCLN, market cap $70B). Other companies' shares cost no more than $800. The most widely-traded shares belong to Sirius XM Holdings (ticker symbol SIRI, market cap $20B, average daily trading volume 55M), and the already mentioned Advanced Micro Devices (35M shares per day), and Apple (32M shares per day). If one remembers that Apple's shares are relatively expensive ($107), one can see that the daily turnover is an enormous one: $3.4B.
Exchange-traded fund (ETF) shares that track the values of the exchange's main indices can also be bought on the NASDAQ. ETF ONEQ tracks the NASDAQ Composite Index, while ETF QQQ tracks NASDAQ 100. If one buys ONEQ, one essentially buys a portfolio of all the small share fractions on the NASDAQ, while buying QQQ means buying a portfolio of 100 largest companies' share fractions. These ETF's prices change over time in the same way as the companies' total market cap. Dividends are also paid for these ETFs, though they are somewhat low: around 1% per year.
The NASDAQ's working hours are the same as those of the NYSE: 17:30 to 00:00 Moscow time (9:30 to 16:00 New York time). Online brokers typically take the same commissions with the NASDAQ as with the NYSE: around $0.02 per share, and around $1 minimum per deal. EXANTE takes the same amount per share, but does not have a minimum commission per deal.