What Is the Nasdaq Composite Index?
The Nasdaq Composite Index is a market capitalization-weighted index of more than 3,700 stocks listed on the Nasdaq stock trade. As an enormous index intently weighted against the very important era sector, the Nasdaq Composite Index has grow to be a staple of monetary markets opinions.
Key Takeaways
- The Nasdaq Composite Index is an index of more than 3,700 stocks, weighted by way of market capitalization.
- The era sector accounts for merely over section the index, more than three times the index weight of some other market sector.
- 5 mega-cap companies accounted for more than 40% of index weight, led by way of Apple Inc. (AAPL) at 12.25%, as of March 31, 2022.
Working out the Nasdaq Composite Index
The Nasdaq Composite Index comprises all equity securities listed on the Nasdaq Stock Market, along with common stocks, extraordinary shares, American depositary receipts (ADRs), devices of exact assets investment trusts (REITs) and publicly traded partnerships, along with tracking stocks, Not eligible for inclusion are the securities of closed-end budget, exchange-traded budget (ETFs), hottest shares, rights, warrants, convertible debenture securities, or other derivatives.
The Nasdaq Composite comprises the stocks of companies headquartered abroad, by contrast with the S&P 500 Index and the Dow Jones Trade Cheap, the two other most often cited market benchmarks.
Nasdaq Composite Index Methodology
The Nasdaq Composite Index uses a market capitalization weighting manner. The index’s worth is calculated by way of summing {the marketplace} capitalization of the index components in keeping with the stocks’ provide value. This common is then adjusted a constant index divisor.
The index was once as soon as offered on Feb. 5, 1971 with an index worth of 100.
The index is calculated often all over the purchasing and promoting day and its worth disseminated once in line with second from 9:30 a.m. to 5:16 p.m. ET. The remainder worth of the indexes would possibly exchange up until 5:15 p.m. ET as a result of this to corrections to the remaining reported value for index components.
Two permutations of the Nasdaq Composite Index are calculated: a price return index and an entire return index. The whole return index assumes the reinvestment of cash dividends distributed by way of companies integrated throughout the index.
1971
The year the Nasdaq Composite Index was once as soon as offered. It had an initial worth of 100.
Changes throughout the percentage value as a result of corporate actions similar to stock splits, stock dividends, or spinoffs are tallied on the movement’s ex-date. Changes typically shares outstanding following conversions, stock repurchases, secondary alternatives, or acquisitions are normally reflected on the night previous than the movement’s environment friendly date.
Eligibility must haves for the index are reviewed all over the year. A security that does not meet the eligibility must haves can also be removed at any time, normally at its remaining sale value.
The Nasdaq Composite Index is among the most widely-watched indexes on this planet and is regularly spotted as a stand-in for the era sector, as a result of its heavy weighting in tech companies.
Nasdaq Composite Index Composition
The industry weighting of the Nasdaq Composite Index in keeping with the integrated stocks was once as soon as as follows as of April 29, 2022:
- era – 51.11%
- consumer services – 16.06%
- consumer pieces – 8.8%
- smartly being care – 7.74%
- financials – 7.43%
- industrials – 5.52%,
- oil and gas – 1.02%
- utilities – 0.91%
- telecommunications – 0.90%
- fundamental materials – 0.52%
The 10 most intently weighed securities throughout the Nasdaq Composite Index as of March 31, 2022 were:
- Apple Inc (AAPL) – 12.25%
- Microsoft Corp. (MSFT) – 9.93%
- Amazon.com Inc. (AMZN) – 7.13%
- Tesla Inc (TSLA) – 4.79%
- Alphabet Class C (GOOG) – 3.79%
- Alphabet Class A (GOOGL) – 3.59%
- Nvidia Corp. (NVDA) – 2.93%
- Meta Platforms (META) – 2.21%
- Broadcom Inc. (AVGO) – 1.11%
- Costco Wholesale (COST) – 1.1%
Nasdaq Composite Index Market Potency
The Nasdaq Composite Index produced an annualized return of 15.4% over the 10 years through April 28, 2022, in line with Morningstar.
Its 9.1% decline in Q1 2022 was once as soon as the Nasdaq Composite’s worst given that 14.2% loss in Q1 2020 for the reason that COVID-19 pandemic struck. The Nasdaq’s 12% drop in April 2022 was once as soon as its worst given that 17.4% decline in October 2008 at the height of the global financial crisis.
The Nasdaq Composite met the common definition for a bear market in mid-March of 2022 by way of dropping more than 20% from its Jan. 3, 2022 peak. From there the index spotted a formidable relief rally that kind of halved its losses by way of the start of April, then gave once more the entire ones options over the next month.
Given that Nasdaq Composite is dominated by way of the historically dangerous era sector, index potency tends to be additional dangerous than that of the S&P 500 or the Dow Industrials.
The Bottom Line
The Nasdaq Composite Index rose to prominence because of the fast construction of one of the most successful companies with Nasdaq-listed stocks, along with Microsoft and further simply in recent years Apple and Alphabet.
The flip side of such ling-term excellent fortune in an index in keeping with market capitalization is that the Nasdaq Composite might be very top-heavy. The very best 5 companies (and six stocks along with every traded classes of Alphabet’s shares) account for more than 40% of the Nasdaq Composite’s index weight.
Moreover, high-growth stocks prevalent throughout the index tend to be additional economically subtle and further dangerous as a result of this. When {the marketplace} does well, the Nasdaq Composite generally is a standout: it gained 43.6% in 2020 despite a rough March, after a 35.2% surge in 2019. When the going gets tricky, you get its 40.5% loss in 2008—or the main 4 months of 2022.
