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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.

​#interestingfact: The S&P 500 has not had a 5%+ drawdown from a peak for the past ten months.

This timeframe equates to over 200 sessions. As this hot run continues, more and more analysts come out of the woodwork, predicting that it will shortly come to an end. Perhaps these analysts are correct, and the S&P 500 will hit a wall at 4,500, a value the index crossed for the first-time last Friday. Coincidently, it was also the time the S&P 500 hit its 8th 100-point day for 2021.

As it currently stands, the S&P 500 is at 4,528.79, up another 19 points on Monday trading.

Of course, this consistent rise of the SPX is out of the norm and, therefore, concerns investors. While we cannot control the unforeseeable, we can follow the market announcements coming out of the US (or other appropriate regions) that might keep us abreast of possible changes in market sentiment and direction.

Economic reports

It is an atypically quiet week on the US reports front. It is not until Wednesday that the big boy reports are released.

ADP Employment Change

united-states-adp-employment-change S&P 500

The precursor to the Non-farm Payroll, the ADP Employment Change report, is forecasting 500K jobs added to the US private sector economy in August. Bear in mind that this report's estimates were off by more than 70% (330K vs 695K expected) last month.

If the ADP Employment Change number comes in at 500K, it will signal a big turnaround for the private sector job placement, which has steadily declined since a record 882K jobs in May. This decline could be forgivable if the 20 million jobs lost in April 2020 had since been regained. However, as it stands, the US economy is still down a net 4 million jobs.

EURUSD NFP S&P 500

NFP creeps in on Friday

The consensus is that 750K jobs have been added to the US economy in August, more than 100K less than expected last month. But, as we all know, NFP beat the expectations of July by a significant number and injected a great deal of optimism in the USD (see EURUSD chart).

How did this big NFP beat translate on the S&P 500?

S&P 500 NFP

Click to enlarge

For the past four NFP job reports, we can observe a pattern.

When the NFP disappoints, the S&P 500 has a rough few days. This rough patch is clearly illustrated in May, where the NFP reported a paltry 266K jobs vs an expected 978K. What ensued on the following Monday was three days of selling, resulting in the S&P 500 falling from 4,233 to 4,058. The SPX didn't gain back those losses until the day before the next NFP was released.

When the NFP beats, the S&P 500 falls, but by far less than when it misses. This begs the question: What will it take for the S&P 500 to react positively? I think it is waiting for an NFP to report more than a million jobs, like last reported in August 2020 (July Job numbers). Otherwise, the Russel 2000 Index will be the biggest beneficiary of the positive, but not grand, NFP reports.

United States ADP Employment Change and the effects

 Market background

On this Wednesday (October 2), the latest US ADP reported that 135 thousand workers were employed in private business in the United States in September. It is less than market expectations, which makes the market more worried about the strength of the US labour market and the overall economy. There are more and more signs that the labour market is slowing. As these figures are announced, people are increasingly worried about the strength of the US economy.

Also, Data released by the Institute for Supply Manufacturing (ISM) on Tuesday showed that manufacturing is shrinking that US manufacturing activity fell to a minimum of more than ten years last month. However, the rate of contraction is not consistent with the recession. US manufacturing activity fell to a minimum of more than ten years last month, raising concerns about the economy. However, other economic data is relatively healthy, especially in the consumer sector.

Further effects 

After the data was released, the financial market volatility intensified.

US dollar 

the US dollar index is lower, which fall about the 99 marks. 

Spot gold 

Spot gold has pulled up nearly 20 US dollars in a short-term, breaking through the 1,500 US dollar/ounce mark.

US stocks

The three major stock indexes of US stocks fell. The situation is particularly fierce. The Dow Jones index fell more than 300 points; the S&P 500 index fell 1.2%, the most significant one-day drop since August 23.

EUR/USD

After the close in London, EUR / USD rose and challenged the 1.0960 resistance. The level of buyer defeat is 1.0960 resistance, then 1.0985.

According to the daily chart, the bear market trend for shared currencies is lower than the main daily Simple Moving Average (DSMA). Disappointing ADP and worth performance of the ISM triggered negative sentiment in the dollar and the market.