The NASDAQ Composite

When you see “the Nasdaq” mentioned next to the Dow and S&P 500, it is the composite index of the Nasdaq stock exchange that is being listed. The Nasdaq stock exchange was the first automated stock exchange where trades and pricing information could be handled electronically. The Nasdaq is traditionally the market for tech companies, but other types of companies are also traded there. It is the second largest stock exchange in the United States behind the New York Stock Exchange (NYSE).

The NASDAQ Composite index is a stock market index of the common stocks and securities listed on the Nasdaq stock exchange. It includes all stocks traded on the Nasdaq that are not ETFs, derivatives, preferred shares, funds, or debentures. Along with the DJIA and the S&P 500, it’s is one of the three most-followed indices in the US stock markets, with roughly over 3 thousand companies in its list. The list includes Apple ($AAPL), Microsoft ($MSFT), Amazon ($AMZN), Google ($GOOGL), Facebook ($FB), Intel ($INTC), PepsiCo ($PEP) and Netflix ($NFLX).

The index was launched on February 5, 1971 at a base value of 100.00.

How the NASDAQ Composite Works

The NASDAQ Composite Index is a market capitalization-weighted index. The value of the index equals the total value of the share weights of each of the constituent securities in the index, multiplied by the last sale price of each security. This total is then divided by the divisor of the index.

The divisor serves to scale the aggregate value to a lower order of magnitude which is a more appropriate figure for reporting purposes. It is adjusted regularly with changes to the index so that the value of the index can be tracked consistently over time. The formula for the divisor is as follows: (Market Value after Adjustments/Market Value before Adjustments) X Divisor before Adjustments.

The Nasdaq Composite Index is calculated continuously throughout the trading day, but it is reported once per second, with the final confirmed value being reported at 4:16PM each trading day.

The advantage of the NASDAQ Composite index in predicting the economy is that it tracks the entire Nasdaq exchange. The disadvantage is that it only tracks stocks traded in the Nasdaq exchange. Both the Nasdaq Composite Index and market also include companies outside of the US, so the Index is affected by foreign economies more directly than the Dow or the S&P 500.