Nasdaq Composite Index : Measure & Performance

What is Nasdaq Composite Index?

The Nasdaq Composite Index combines almost all the stocks listed on the NASDAQ Stock Exchange and depicts the performance of the stock market as a whole. This index is based on the market capitalization of all the stocks listed on the exchange. This market cap-weighted index comprises more than 3000 stocks that are listed on the exchange. It is one of the largest indexes which covers the biggest technology sector composed of both domestic and international companies. The Nasdaq Composite Index is a largely observed stock index and is the main component in the reports of the financial markets. This index is cited along with the S&P 500 and the Dow Jones Industrial Average.

This Index includes securities listed on the Nasdaq such as ordinary shares, common stocks, American depositary receipts (ADRs), tracking stocks, real estate investment trusts (REITs), and shares of limited partnerships. There is a smaller index known as the NASDAQ 100 that measures the performance of the top 100 non-financial companies listed on the stock exchange depending on the market capitalization.

Geeky Takeaways

• Nasdaq stands for “National Association of Securities Dealers Automated Quotations.”
• The Nasdaq Composite Index comprises 3000+ stocks traded on the Nasdaq.
• This index comprises heavily weighted technology stocks, consumer discretionary, and healthcare companies.
• To be included in the index, the stock must be a common stock of an individual company, excluding the preferred stock, ETFs, and other forms of securities.
• Nasdaq Composite Index is one of the most popular stock indices, apart from S&P 500 and Dow Jones Industrial Average, based on the market performance of the listed companies to represent the market performance as a whole.

Nasdaq Composite Index Methodology

1. Launched On: In 1971, on 5th February, the Nasdaq Composite Index was launched.

2. Calculation: Market capitalization weighing methodology is used to value the index. It is calculated by adding the market capitalization of the stocks on the basis of the current market price of the securities. This result is then adjusted using a constant index divisor. The initial value was set at 100.

3. Timings: The Nasdaq Composite Index is continuously calculated throughout the trading day and its value is circulated every second from 9:30 am till 5:16 pm ET (Eastern Time Zone). The closing value might change due to the changes in the last reported price for index constituents till 5:15 pm ET.

4. Versions: Two versions are calculated- Price Return Index and Total Return Index. The total return index assumes that the listed companies distribute their cash dividends into reinvestment.

5. Changes in the Prices: Due to stock splits, stock dividends or spinoffs, the share price of the companies changes which are tallied on after the announcement of the action. There are changes in the total shares outstanding, due to conversions, secondary offerings, stock repurchases or acquisitions, that are reflected on the night before the effective dates of these occurrings.

6. Eligibility Requirements: The requirements for inclusion on the index are reviewed throughout the year. If a stock or security does not meet the eligibility requirements, they are removed at any given time generally at its latest selling price.

Nasdaq Composite Index Composition

As of October 31, 2023, Nasdaq Composite comprised 3473 stocks across 11 ICB industry groups. The following table shows the percentage wise sector breakdown under the Nasdaq Composite.

Sector	Percentage of Weights
Technology	56.75%
Consumer Discretionary	18.13%
Healthcare	7.41%
Industrials	4.54%
Financials	3.59%
Telecommunications	3.36%
Consumer Staples	2.86%
Real Estate	0.99%
Energy	0.98%
Utilities	0.94%
Basic Materials	0.45%

Below is the list of the top 10 largest stocks in the Nasdaq Composite Index as of January 8, 2024, 4:00pm ET,

Company Name	NASDAQ	Percentage of Weights
Apple	AAPL	2.42%
Microsoft	MSFT	1.89%
Amazon	AMZN	2.66%
Nvidia	NVDA	6.43%
Tesla	TSLA	1.25%
Alphabet (C shares)	GOOG	2.29%
Alphabet (A shares)	GOOGL	2.29%
Meta	META	1.91%
Broadcom	AVGO	2.44%
ASML Holding	ASML	1.43%

Nasdaq Composite Index Market Performance

1. By the year end 2023, Nasdaq Composite Index provided an annual return of 26.80% compared to the year 2022 of -33.10% of annual returns.

2. In Q1 2022, Nasdaq Composite scored the worst with a 9.1% decline compared to the 14.2% loss in Q1 2020 due to pandemic catastrophe. In April 2022, Nasdaq hit another low of 12% since the 17.4% decline in 2008 October, due to the Global Financial Crisis.

3. In mid-March 2022, Nasdaq portrayed a bear market by declining more than 20% since the highest of 3rd January, 2022. From here, the index saw a relief as its losses were halved by the beginning of the April. By the next month, Nasdaq Composite could gain as the market started to push into the bull market.

4. The Nasdaq comprises 106 indexes out of which Nasdaq 100 out performed in 2023 providing a historical gain of 54%.

5. Compared to S&P 500 and the Dow Jones Industrials Average, Nasdaq Composite Index is more volatile as it is dominated by the largest technology sector.

What does the Nasdaq Composite Measure?

1. Listed Stocks: The Nasdaq Composite Index measures the performance of the more than 3000 listed securities in the Nasdaq Stock Exchange.

2. Performance: The Nasdaq Composite Index measures the performance of the stocks included in the index of the listed companies in the stock exchange. The companies in the index are weighted based on the price of their outstanding shares. These weight changes based on the performance of the company’s share price.

3. Example: Apple is known to be the most valuable company in the world with a market capitalization value of $2.88 Trillion and Apple covers 12.90% weight of the Nasdaq Composite Index. Followed by Microsoft with a market capitalization of $2.79 Trillion, cover around 12.14% of the index.

4. Usage: The Nasdaq Composite Index is used by investment managers as a benchmark to measure performance of their fundings. Further, the funds which focus on the tech industries measure the Nasdaq Composite Index value to compare the performance of their fundings.

How is Nasdaq Composite Index Constructed?

The Nasdaq Composite Index is constructed based on the weights of the market-capitalization of the listed companies in the index. This depicts that the index value is largely influenced by the top largest companies of the world whose market capitalization is huge. Hence, this index is one of the most largely watched in the world.

How to Invest in a Nasdaq Index?

Direct investing into the Nasdaq Compoisite Index is not possible. Rather, one can invest in exchange traded funds or mutual funds which can actually track the performance of the index with very low cost. These funds are composed of the same shares with the same weights that matches with the index’s performance. For example,

• Fidelity Nasdaq Composite Index ETF (ONEQ) focus on the index’s performance having an expense ratio of 0.21%.
• Invesco QQQ trust (QQQ) ETF tracks the performance of Nasdaq 100 having an expense ratio of 0.2%.

These mutual funds and ETFs can be easily bought via online stock brokers.

What Types of Companies are in the Nasdaq Composite Index?

The Nasdaq Composite Index cover the largest technology sector of the world. Around 56.75% comprise of the tech based companies such as Apple, Microsoft, Meta, Amazon and Google covering the topmost in the list. However, other industries also complement the index such as consumer discretionary which accounts for 18.13% as of December 2023. Followed by healthcare sector comprising around 7.41%. Few of the financial companies for example T. Rowe Price are included in the index. Some of companies in the different categories are as follows:

• Basic Materials: Steel Dynamics
• Consumer Discretionary: Airbnb, Allbirds, Crocs, Malibu Boats, Rent the Runway
• Consumer Staples: Beyond Meat, Keurig Dr. Pepper, Monster Energy, Walgreens
• Energy: Chesapeake Energy, Plug Power, SunPower
• Financials: Carlyle Group, Coinbase, Nasdaq, Robinhood
• Health care: 23andme, Amgen, Soligenix, Sonoma Pharmaceuticals
• Industrials: CSX Transports, Honeywell, PayPal
• Real Estate: CoStar, Zillow
• Telecommunications: Cisco, T-mobile
• Utilities: Constellation Energy Group, Xcel Energy

Frequently Asked Questions (FAQs)

1. What are the benefits of index investing?

Answer:

Index investing offers several benefits as they offer a broad exposure to the market. The broad exposure is due to the large stocks of a wide range of sectors comprising the Nasdaq Composite index. Further, index investing is easy to handle as mutual funds and ETFs makes necessary changes when the corresponding index changes. Adjustments are made when the index makes one.

2. What are stock market indexes?

Answer:

The stock marekt index represents the performance of the economy depending on the investor feelings. An index collects data from a wide range of companies covering multiple industries. Amalgamating, these data presents a visual which helps investors compare current price levels with past prices to measure the performance of the market.

3. Is the Nasdaq a U.S. Stock Market?

Answer:

Yes, the Nasdaq is a U.S. stock exchange in New York City. It was launched in February, 1971. Around 3000+ companies which are traded on the exchange including domestic and international firms. Nasdaq was the first automated exchange in the world.