What Is the Nasdaq Composite Index?

If you’re new to stock markets, you’ve no doubt heard of the Nasdaq Composite Index. It’s one of the most widely followed stock indexes in the world, and it’s commonly cited by financial commentators and news outlets, along with the Dow Jones Industrial Average and the S&P 500.

But what is the Nasdaq Composite Index and why does it matter?

What kind of stocks are listed in the Nasdaq Composite Index?

The Nasdaq stock exchange is a global electronic marketplace for buying and selling securities. It was originally created in 1971 as a place where investors could quickly and transparently trade stocks on a computerized system.

The Nasdaq Composite Index consists of stocks that are listed on the Nasdaq stock exchange. It’s made up of more than 3,000 stocks.

For a stock to be included in the Nasdaq Composite Index, it must be listed exclusively on the Nasdaq market and be a common stock of an individual company

This means that preferred stocks, exchange-traded funds (ETFs) and other types of securities are ineligible. However, American depositary receipts (ADRs), real estate investment trusts (REITs) and shares of limited partnerships are eligible.

The index is designed to represent the entire Nasdaq stock market, not just the largest companies. This differs from an index like the S&P 500, which tracks the performance of the 500 largest companies listed on stock exchanges in the United States.

Which industries are listed in the Nasdaq Composite Index?

The Nasdaq Composite Index is known for listing technology giants like Apple, Google, Microsoft, Amazon and Intel. In fact, technology is the most represented industry on the Nasdaq Composite Index. As of March 2020, about 48% of the Nasdaq Composite Index was made up of technology companies. Therefore it’s generally considered a good weather vane for how well the technology industry is performing.

Other industries that are represented in the index include consumer services, health care, financial, industrial, consumer goods, utilities, telecommunications, oil and gas, and basic materials.

How is the Nasdaq Composite Index calculated?

The Nasdaq Composite Index is a market capitalization-weighted index. That means that larger companies have a more significant impact on the price. In fact, the top 10 stocks in the index make up one third of the index’s performance. So when the stock price of one of these 10 companies goes up or down, it has a greater effect on the performance of the index when compared to a smaller company.

The index is calculated throughout the day and reported once per second. The final confirmed value of the index is reported at 4:16 pm each trading day.

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