The Nasdaq Composite index is an important indicator of the health of the U.S. stock market and the economy as a whole. The index, not to be confused with the Nasdaq Stock Exchange, includes many technology and growth companies in the U.S., as well as international companies trading as American Depositary Receipts, as well as real estate investment trusts. The index has over 3,000 components and can provide investors with a gauge of how these stocks are performing.
The Nasdaq Composite consists of the values of virtually all common Nasdaq stocks. What is unique about the Nasdaq Composite is that it also includes companies that are headquartered in areas outside of the U.S., while other major indices like the Dow Jones Industrial Average and the S&P 500 do not.
According to Nasdaq, the Nasdaq Composite is calculated under a market capitalization weighted methodology index. Public companies that wish to be included in the Nasdaq Composite must meet certain criteria, which include being categorized as one of the following:
- American Depositary Receipts (ADRs)
- Common Stock
- Limited Partnership Interests
- Ordinary Shares
- Real Estate Investment Trusts (REITs)
- Shares of Beneficial Interest (SBIs)
- Tracking Stocks
Nasdaq Stock Indices
Other notable Nasdaq indices includes the Nasdaq-100, which tracks the 100 largest non-banking Nasdaq stocks, as well as the Nasdaq Financial-100, which covers the financial stocks. Given that the Nasdaq Composite and Nasdaq-100 were so heavily weighted in tech stocks, these indices were vulnerable to the ups and downs of the dot-com boom. Unlike the Nasdaq Composite, the Nasdaq-100 index is weighted by market cap and rebalanced every so often if either one company in the index is worth over 24 percent of the entire index or if companies with a weighting of 4.5 percent make up 48 percent of the index.