Thursday, May 28, 2020

Uninformed Thoughts about the Nasdaq Index

I have gotten into the habit of using the Apple Stocks app to track significant indices in the United States, Europe, and Asia on a daily basis. (I review my own portfolios on a monthly basis based on statements provided by my broker.) As I write this, the Nasdaq index is at 117.33. This is the highest it has been since the index peaked at 118.67 on February 4!

Let's not kid ourselves. No stock index is a measure of "value." At best the level of an index can be taken as a level of confidence or, perhaps more specifically, willingness to trade. Why should that willingness be higher for the Nasdaq portfolio than it is for the S&P 500? Since I am not in any way an expert on these matter, my best conjecture is that Nasdaq holdings represent businesses that can function with much, if not all, of the employees working from home. Nasdaq reflects companies that "push bits," one way or another, rather than build houses or manage grocery stores.

In other words, while it might be easy to promote Nasdaq as a sign of recovery, the basis for computing the index value may not be a statistically significant indicator of the health of the overall economy.

No comments: