Nasdaq to S&P 500 Ratio

Interpretation

The Nasdaq to S&P 500 ratio is a financial metric that compares the performance of the Nasdaq Composite Index, which primarily consists of technology and growth-oriented companies, to the broader U.S. stock market represented by the S&P 500. When the ratio rises, it indicates that the Nasdaq is outperforming the S&P 500, suggesting that technology and growth stocks are experiencing stronger growth and generating higher returns compared to other sectors represented in the S&P 500. Conversely, when the ratio falls, it implies that the Nasdaq is underperforming the broader market, indicating relative weakness in the technology and growth sectors compared to other industries.
By definition, this ratio cannot grow forever. At some point, the stocks listed on the Nasdaq Exchange would simply make up 100% of the US stock market.
Historically, the ratio reached its peak during the Dot-com mania in the year 2000. This period was marked by an excessive optimism and overvaluation of technology companies, particularly those listed on the Nasdaq exchange.

Data Sources

• Federal Reserve Bank of St. Louis: Recent S&P 500 prices
• Federal Reserve Bank of St. Louis: NASDAQ Composite Index
• Nasdaq: Historical S&P 500 prices

Further Information

• TradingView Chart: Nasdaq / S&P 500
• Investopedia: Standard & Poor's 500 Index - S&P 500
• Investopedia: Nasdaq Composite Index
• Longermtrends: US Stock Market Indices

Interpretation

The NASDAQ Composite tracks the performance of all common equities listed on the NASDAQ stock market exchange.
The S&P 500 consists of 500 large US companies and captures approximately 80% of available market capitalization. Therefore, it is quite representative of the overall US stock market and moves almost identically to the Wilshire 5000.
Both indices are capitalization-weighted and do not include dividends.