S&P 500 as a Leading Economic Indicator

Course: Fundamentals of Financial Planning
Lesson 2: Economic Concepts and Consumer Protection Laws

Student Question:

Hi.  Why is the S&P 500 considered a leading economic indicator and NASDAQ is not?  Both are part of the stock market.

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Instructor Response:

The S&P 500 is a broader representation of the overall market, with 500 large-cap companies represented.  NASDAQ has a lot of companies, over 3,000 stocks, but concentrated in tech firms.  Also, stock prices are based on future corporate earnings, so the S&P, with its representation of the largest capitalized companies provides a better overall economic forecast than NASDAQ, which is often influenced by speculative behavior.

Let me know any questions!