NASDAQ Composite
NASDAQ Composite is a broad stock market index that measures the performance of nearly all common stocks listed on the Nasdaq stock exchange. Introduced on 5 February 1971, the index is one of the most widely followed indicators of the United States equity market and serves as a benchmark for companies listed on Nasdaq. Unlike price-weighted indices such as the Dow Jones Industrial Average, the NASDAQ Composite is a market capitalization-weighted index, with constituent companies weighted according to their market capitalization. Although the index includes companies from various industries, it is particularly associated with the technology sector because of the large number of technology and growth-oriented companies listed on Nasdaq.
History
The NASDAQ Composite was launched on 5 February 1971 alongside the establishment of the Nasdaq stock market, becoming the first computerized stock market index. Initially comprising fewer than 3,000 securities, the index was created to measure the overall performance of companies traded electronically on the newly established exchange.
During the 1980s and 1990s, the rapid growth of the personal computer, semiconductor, software, and Internet industries significantly increased the prominence of the index. Technology companies such as Microsoft, Intel, Cisco Systems, and later Apple Inc., Alphabet Inc., Amazon, Meta Platforms, NVIDIA, and Tesla, Inc. became among its largest constituents.
The index experienced substantial volatility during the dot-com bubble, reaching record highs before declining sharply following the market correction of 2000–2002. It subsequently recovered and reached new record levels during the expansion of the technology sector in the 2010s and 2020s.
Methodology
The NASDAQ Composite is a modified market capitalization-weighted index. Each constituent's influence on the index is determined primarily by its market capitalization, calculated by multiplying its share price by the number of publicly available shares.
The index includes nearly all domestic and international common stocks listed on the Nasdaq Stock Market that satisfy eligibility requirements established by Nasdaq Indexes.
Eligible securities generally include:
- common stocks
- ordinary shares
- American depositary receipts
- tracking stocks
- real estate investment trusts
Certain securities, including preferred shares, exchange-traded funds, closed-end funds, convertible securities, rights, warrants, and derivatives, are generally excluded from the index.
Composition
The NASDAQ Composite represents thousands of companies across numerous sectors of the economy.
Major sectors represented include:
- information technology
- communication services
- consumer discretionary
- healthcare
- financial services
- industrials
- consumer staples
- energy
- utilities
- real estate
- materials
Although diversified, the index has a comparatively high weighting in technology-related companies due to the concentration of technology firms listed on Nasdaq.
Calculation
The NASDAQ Composite is calculated using a market capitalization-weighted methodology.
The index value is determined by aggregating the adjusted market capitalization of all constituent securities and dividing the result by an index divisor maintained by Nasdaq Indexes. The divisor is periodically adjusted to account for stock splits, corporate actions, mergers, acquisitions, spin-offs, and changes in index composition, ensuring continuity of the index.
Relationship with other Nasdaq indices
The NASDAQ Composite is distinct from several other Nasdaq equity indices.
These include:
Unlike the NASDAQ-100, which includes only the 100 largest eligible non-financial companies listed on Nasdaq, the NASDAQ Composite encompasses nearly all eligible listed companies regardless of size or sector.
Use as a benchmark
The NASDAQ Composite is widely used by investors, fund managers, economists, and financial analysts as a benchmark for the performance of the Nasdaq stock market and the broader technology sector.
The index is commonly used for:
- measuring equity market performance
- evaluating investment portfolios
- economic analysis
- financial research
- performance benchmarking
- derivative products
- exchange-traded funds
- index funds
Its movements are closely monitored as an indicator of investor sentiment toward growth-oriented and technology companies.
Major market events
The NASDAQ Composite has experienced significant fluctuations during several major financial events.
Notable periods include:
- the dot-com bubble
- the dot-com crash
- the 2007–2008 financial crisis
- the COVID-19 recession
- the global inflation and monetary tightening cycle beginning in 2022
These events have influenced the valuation of technology and growth companies, contributing to periods of both rapid appreciation and substantial market declines.
Significance
The NASDAQ Composite is regarded as one of the principal indicators of the United States equity market alongside the S&P 500 and the Dow Jones Industrial Average. Because many of the world's largest technology companies are listed on Nasdaq, the index is often viewed as a measure of the performance of the technology sector, innovation-driven industries, and growth-oriented companies. Its composition has evolved alongside changes in the global economy, reflecting the increasing importance of information technology, digital services, biotechnology, artificial intelligence, and advanced manufacturing.