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For many first-time investors, some financial market terminology can be confusing. A question that often crops up is ‘what is the difference between the Nasdaq and the nasdaq100?’. Effectively this question can be answered by defining the difference between a ‘Stock Exchange’ and a ‘Stock Exchange Index’.

What Is A Stock Exchange?

Stock Exchange Index

A Stock Exchange is a marketplace where the buyers and sellers of company stock (aka shares) can transact.

The owners of Stock Exchanges oversee that the companies whose stock is listed adhere to rules that ensure fair market conditions for buyers and sellers. In short, they make sure that companies are continually disclosing information that buyers and sellers would deem necessary to make informed financial decisions regarding the buying, holding, or selling of stock.

The organisations that oversee Stock Exchanges earn the bulk of their revenue from transaction fees. In fact, Stock Exchange companies can be incredibly lucrative. In 2020, the largest Stock Exchange in the world, the New York Stock Exchange (NYSE), generated US $50.9 billion in revenue.  The next largest Stock Exchange in the world, the Nasdaq, generated US $5.6 billion in revenue in the same year.

Interestingly, many organisations that own exchanges are themselves listed on exchanges. The owner of the NYSE, Intercontinental Exchange (NYSE: ICE), can be found on none other than the NYSE. The owner of the Nasdaq, Nasdaq Inc (NASDAQ: NDAQ), is, of course, listed on the Nasdaq.

What Is A Stock Exchange Index?

Stock Exchange Index

A Stock Exchange Index is a way to measure the stock performance of companies listed on Stock Exchanges. Companies can be grouped by size, industry, or several other categorisations.

The performance of the companies in an index informs the performance of the index. Essentially, if the share price of the companies in the index are rising, so will the index.

A Stock Exchange Index may measure the entire Stock Exchange or only a section of the Stock Exchange. For example, the Nasdaq 100 measures the performance of the largest 100 companies that are listed on the Nasdaq. The Nasdaq Composite is a similar Stock Exchange Index, except this Index does not discriminate. As such, the Nasdaq Composite is representative of all 3,700 companies listed on the Nasdaq.

The last two weeks haven't exactly been ideal for the major US indices. Since the end of August, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 have been down 1.54%, 0.93%, and 0.51%, respectively. The decline in these indices is all the more striking as they have followed an impressive run of record highs and seemingly inexhaustible market bullishness.

In times like these, perhaps it is good to remind ourselves how far the indices have come in the year to date. If anything, reminiscing about the indices extraordinary gains in 2021 should help us contextualise the minor misfortune befalling stocks and indices in September.

It may also be appropriate to remember that September has never been a great time for stocks. One example frequently quoted is that Since 1945, the S&P 500 has closed lower 55% of the time during September. More recent history has been kinder to the index, recording a 25% loss rate in four September since 2016.

It may be too soon to call September 2021 for the bears. There is still time for the market to turn things around. As we ride out the rest of the month, let's revisit some of the most significant share price gainers of US-listed companies thus far in the year. Bear in mind; some stock price gains may be the result of steep losses the year before or other anomalies in the market.

Largest Gainers: Past Week

aTyr Pharma (NASDAQ: LIFE)

aTyr Pharma shares have risen 60.8% in the past week after it reported positive results in a trial of its lung disease (pulmonary sarcoidosis) medication. The Californian based Biotherapeutics Company share price rise is even more impressive from the vantage of a month, up by 81.7% in this time frame.

Notable mentions; Uranium Energy (NYSEAMERICAN: UEC) up by 26.6%, Aloca (NYSE: AA) up by 13.0%,  First Solar (NASDAQ: FSLR) up by 9.7%.

Largest Gainers: Past Three Months

Peabody Energy (NYSE: BTU)

ESG investors will be disheartened to hear the Largest Gainer for the past 90 days has been Peabody Energy Corp. Peabody Energy is a 'coal producer', one of the largest in the world at that, with mining operations across the US and Australia. The Company has contracts to supply Coal to electricity generators, and steel manufactures around the globe.

Since August, the price of Coal has soared due to limited supply and improving demand from developing Asian nations. These factors led to improved finances for the Company, resulting in BTU rising by 83.6% since mid-June.

For interest sake, Coal is currently trading at $177.5 per metric ton, up from $40.40 per metric ton at the end of August.

Notable mentions: Chipotle Mexican Grill (NYSE: CMG) up by 37.6%, Advanced Micro Devices (NASDAQ: AMD) up by 29.9%, and Nvidia (NASDAQ: NVDA) up by 25.3%.

Largest Gainers: Year To Date (YTD)

AMC Entertainment (NYSE: AMC)

Perhaps this was an obvious choice for Largest Gainers since February 4 (the first trading day of 2021). AMC, up by 2,200%, after catching a second meme-stock wind. Its popularity as a short squeeze stock has risen to be perhaps equal to that of GameStop (NYSE: GME). It is arguably so because it is "cheaper" per stock and owning one whole AMC stock feels more satisfying than owning one-fourth of a GME.

Speaking of which, the only stock that could give AMC a run for its money is GameStop. Up by ~1,000%) YTD, GME has battled its way up to from US $17.25 to, as of writing, US $204.5 per share.

Notable mentions: Veritiv (NYSE: VRTV) up by 329.1%, Dillard (NYSE: DDS) up by 250.5%, Macy's (NYSE: M) up by 89.9%.

Pullback in risk on – and that’s a good thing

De-risk! The market pulled back today on expensive tech stocks, overstretched valuations, with investors questions whether the stock market still has legs.

Broad Pullback

Steep valuations forcing a pullback

The FAANG stocks took the biggest hits as investors start to question their lofty valuations. Facebook and Apple are currently trading at 37 times price to earnings, with tech companies such as Salesforce and Zoom trading over 100 times their valuation. However, some consider this a healthy thing for the markets. Alec Young, chief investment officer at Tactical Alpha LLC, stated that “Frankly, the deeper the pullback in tech, the healthier it is for the overall market.” He further noted that the “market was overbought; too many people chased the tech names. It is all Healthy; the valuations have been stretched.”

U.S Dollar seeing gains on a pullback

The U.S dollar is set to record a weekly gain after a near ten-week downwards spiral for the greenback. However, with the Federal reserve continuing to pump liquidity into the markets, there are still plenty of headwinds against the U.S Dollar.

Take advantage of the pullback.

If you are an investor, try not to look at your investments to prevent any impulsive actions. Use this opportunity to buy your favorite stock for cheaper. Remember, this is a marathon, not a sprint.

NASDAQ 100 continues to print money for investors

The NASDAQ 100 continues to see Green, with the index up almost 1% today. In the past 120 days, the NASDAQ 100 is up 70% from its March lows, with only 42 days in red.

Market consensus is that the recent rise in equities is primarily due to the Fed's wave of liquidity, not an uncommon view. However, it is interesting to note that recently dovish outlooks from Central banks have implicitly become a buy symbol as it means the Fed will continue to shower the market with liquidity, with investors and traders betting on that liquidity, making it into the markets. Chris Gaffney, president of the world markets at TIAA Bank, stated that "Negative real yields across the globe are almost forcing people to find investments that have a potential for gain."

NASDAQ 100 has minted many rich investors

Is there more room for the NASDAQ to run?

I believe if the Fed continues to provide accommodative financial support to the economy, equities – especially tech equities will continue to live in the perfect breeding ground to push higher. Tech stocks have outperformed most of the stock markets before the Coronavirus. However, they have proven to continue beat earnings the Coronavirus. Ie. In a world where tech stocks widen their outperformance during the pandemic alongside favorable financial conditions for risk-on assets, it easy to that it is a no brainer.

However, some analysts are getting concerned on the overstretched valuations; Maria Municchi stated that the markets are going to question whether the Fed's inventions were helping companies to create money, saying that "At some point, investors start to ask, is this just liquidity that expands [money supply] or will it be liquidity contributing to earnings."

It raises the question – is the NASDAQ 100 a bubble?

A general rule I have – if people who don't associate themselves with investing start talking about a stock or something, you're near the bubble's peak. If that person's mum starts talking about a stock, you're at the bubble's peak. Similar to Bitcoin in 2018, everyone and everyone's dog were talking about Bitcoin. This year? That topic goes to Tesla.

To ride its wave on its popularity, Tesla plans a $5 Billion "at the market" offering. It's an offering you first learn about in accounting 101, where the company takes authorized shares that are not public and offer them to the secondary market. This would dilute shareholders and require a high stock price to take the blow of the dilation – which Tesla has. They don't need the money. But it's an excellent way to leverage the stock price.

The reason I bring this up is that all the times' investors have taken short positions on the company, a wave of bull investors would force a short squeeze, pushing the stock even higher. What's the best way to bet against a bubble? There isn't – however, there's no reason for you too. If you are concerned about a drop – the best thing to do is sit it out.