Nasdaq vs. S&P 500: Differences in Historical Performance

The Nasdaq Composite and S&P 500 are two major U.S. stock indexes historically used by many investors as benchmarks for performance. The Nasdaq, driven largely by tech and growth stocks, has averaged annual returns of well over 10% from its inception in 1971 through 2024. The S&P 500, which represents a more varied mix of large-cap companies, has a somewhat more modest average annual return over the same period. However, while their long-term returns are not extremely dissimilar, the two indexes perform differently in various market environments.

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Nasdaq vs. S&P 500: What’s the Difference?

The Nasdaq Composite and the S&P 500 are both prominent stock indexes familiar to many investors. While alike in this regard, they differ significantly in both composition and weighting methodology, which leads to distinct market behavior.

The Nasdaq includes over 3,000 stocks listed on the Nasdaq Stock Market, with a strong tilt toward technology, biotech and growth-oriented companies. Its makeup skews toward firms like Apple, Microsoft, Amazon and Nvidia, with significant weight concentrated in a handful of mega-cap names.

In contrast, the S&P 500 tracks 500 of the largest publicly traded U.S. companies across a wide range of sectors, including financials, healthcare, consumer staples and energy. Its sector diversification often results in lower volatility compared to the Nasdaq. While both indexes are market-cap weighted, the broader industry mix in the S&P 500 tempers the impact of sharp movements in any single sector.

Additionally, the Nasdaq includes many smaller, speculative and non-profitable companies, which can amplify returns during bull markets but may also increase downside exposure during corrections. The S&P 500 tends to be more stable, reflecting a balance of growth and value stocks.

Nasdaq vs. S&P 500: Historical Performance

While both the Nasdaq and S&P 500 have delivered strong long-term performance, their average annual returns reflect differences in sector concentration and risk exposure. Since its inception in 1971, the Nasdaq Composite has produced average annual returns of approximately 12.95%, according to analysis of historical return data from macrotrends. These gains have been driven largely by periods of rapid growth in the technology sector, particularly during the dot-com boom, the post-2009 recovery and the rise of cloud computing and AI.

The S&P 500, which dates back to 1957 in its current form, has returned around 10.5% annually through 2024. Its returns tend to be steadier, benefiting from broad sector representation and more balanced exposure to both growth and value stocks.

Performance Across Eras and Market Cycles

A couple deciding between Nasdaq and S&P 500 investments.

The Nasdaq Composite and S&P 500 have responded differently to various market environments, shaped by their composition and sector exposure.

The contrast between these indexes becomes most apparent in periods of economic stress or exuberance. While the Nasdaq tends to be more reactive and prone to sharper swings, it also captures outsized gains when technology and innovation are in favor. The S&P 500 generally exhibits more resilience across a wider range of conditions.

Here’s a look at how the two indices have performed during different periods over the last 30 years:

Dot-Com Boom

During the dot-com boom of the late 1990s, the Nasdaq surged as technology stocks soared, vastly outpacing the S&P 500. However, the subsequent collapse in 2000 hit the Nasdaq particularly hard, erasing much of those gains, while the S&P 500 experienced a milder correction.

2008 Financial Crisis

In the 2008 financial crisis, both indexes saw steep declines, but the S&P 500’s exposure to financials made it particularly vulnerable. The Nasdaq, by contrast, had less weight in banking and recovered faster as tech-led innovation fueled a rebound. From 2009 through the end of 2021, the Nasdaq consistently outperformed, driven by massive gains in companies like Apple, Amazon and Tesla. Meanwhile, the S&P 500 posted strong returns but with a smoother trajectory due to its sector diversification.

Inflationary Periods

During inflationary periods or rising interest rate environments—such as in 2022—the Nasdaq has often lagged. Growth stock valuations are more sensitive to rate hikes. In contrast, the S&P 500’s mix of defensive sectors, such as consumer staples and healthcare, can soften the impact of broader selloffs.

Pros and Cons of Investing in the Nasdaq

The Nasdaq appeals to investors seeking growth, especially in the technology and innovation sectors. However, that growth comes with increased volatility and less diversification compared to broader indexes.

Here are three primary reasons to invest in the Nasdaq:

High growth potential: Strong gains during bull markets, especially when tech leads
Innovation exposure: Heavy weighting in companies driving technological change
Strong recent performance: Historically outperformed other indexes in the last 15 years

However, you should also keep these potential pitfalls in mind:

High volatility: Large swings in value during downturns
Sector concentration: Overexposure to technology and growth stocks
Less income: Limited exposure to dividend-paying companies

Pros and Cons of Investing in the S&P 500

The S&P 500 offers diversified exposure to the U.S. economy, making it a popular choice for investors who prefer more stable returns and broader sector coverage.

The benefits of investing in the S&P 500 include:

Broad diversification: Exposure to 11 sectors, reducing reliance on any single industry
Lower volatility: More stable returns during periods of market stress
Income potential: Greater presence of dividend-paying stocks

However, investing in this index also comes with the following drawbacks:

Market average performance: Typically mirrors overall economic trends rather than outperforming them
Moderate growth: Tends to lag the Nasdaq in high-growth periods
Less tech exposure: Lower participation in explosive tech rallies

Bottom Line

An investor comparing Nasdaq and S&P 500 performance.

Both the Nasdaq and S&P 500 offer distinct paths to market exposure, shaped by their composition and sector focus. The Nasdaq tends to lead during tech-driven upswings but carries greater risk when those sectors fall out of favor. The S&P 500, with its broader base, may lag in rapid expansions yet often provides steadier performance across cycles. Choosing between them—or combining both—depends on how one weighs growth opportunities against volatility and diversification.

Investment Planning Tips

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