The words “Dow” and “NASDAQ” have become synonymous with “the market” and because of that, few people actually know what either of them is, or how they differ from each other. In the sense that most people refer to them, they are both statistical measures of a portion of the market. As stock market indexes, they provide people with a general indication of how well the stock market is doing. An “index” is simply an average of a bunch of numbers derived from the price movements of certain stocks. In other words, an index says whether, on average, a group of stocks went up or went down on a given day.

The Dow (it’s full name is actually the Dow Jones Industrial Average or DJIA) tracks the performance of 30 different companies that are considered major players in their industries, thus providing an overall feel of the economy. The companies the Dow Jones tracks are companies you know well like McDonalds, Disney, Nike, Wal-Mart, ExxonMobil, Microsoft, Johnson & Johnson, American Express, and Visa amongst others.

The Nasdaq Composite, on the other hand, tracks approximately 4,000 stocks, all of which are traded on the Nasdaq exchange. The Dow is composed mainly of companies found on the New York Stock Exchange, with only a couple of Nasdaq-listed stocks. So, the Dow tracks a select few companies in the New York Stock Exchange while the Nasdaq Composite tracks all the companies in the Nasdaq exchange, the vast majority of which are tech companies.

Just a quick note that “NASDAQ” in all caps is an acronym for the National Association of Securities Dealers Automated Quotations System, which was the first electronic exchange, where investors could buy and sell stock. When people talk about the Nasdaq being up or down, however, they are referring to the Nasdaq Composite Index, which is what we just talked about.

This is what it ultimately comes down to: Both the Dow and Nasdaq give a quick glimpse into the general market wellness. The Dow Jones, even though it only tracks 30 companies, is widely accepted as the leading indicator of overall market health. The Nasdaq Composite has grown popular because it is commonly accepted as a shorthand indicator of how tech-sector and innovative companies – both big and small – are faring. So if you saw on the news that the Dow is up 200 points but the Nasdaq is down 100, that would tell you overall the financial market and economic wellness of the country grew today, but that the tech-sector had a down day.