The NASDAQ Composite Index was launched in the year 1971 and is a broad-based index that constitutes more than 3000 securities. It is one of the most premier indexes in the financial world. This is a weighted index calculated based on the basis of market capitalization. Along with S & P 500 and the Dow Jones average, it is one of the three most watches and followed indices in the stock markets of the United States.
The NASDAQ Composite Index is not to be confused with the NASDAQ 100. The NASDAQ 100 consists of 100 non-financial companies listed on the NASDAQ. These are a subset of the NASDAQ Composite Index securities and account for over 90 percent of the movement of the composite index.
There are different types of securities that make up the index including common stocks, American depositary receipts (ADRs), Shares of Beneficial Interests (SBIs), Real Estate Investment Trusts (REITs), limited partnerships interests and tracking stocks. All stocks listed in the NASDAQ that are not classified as preferred shares, derivatives, debenture securities, ETFs, rights, warrants and funds are included in the index. The NASDAQ Composite Index is also different in that it is not limited to those companies that are headquartered in the US.
The History of the NASDAQ Composite Index
The NASDAQ Composite Index was launched in the year 1971 with a value of 100. In the month of July 1995, the value of the index first crossed the 1000 mark. IT steadily gained to touch 2000 in 1998 and the acceleration steadily continued. The index touched an all-time high of 5048.62 on March 10, 2000 after hitting an intra-day high value of 5132.52. The value then declined during the times of the dot-com bust hitting an intra-day low of 1108.49 on October 10, 2002. October 31, 2007 saw the value of the index at an intra-day high of 2861.51. The index then dropped 200 points below the 2000 level when the world’s financial markets went into turmoil. In the month of February in 2012 on the 29th, the index crossed the 3000 mark. After a few pullbacks, the index once again crossed 3000 during the course of that same year. November 2014 was the first time the index crossed 4000 since September 2000. The year of 2015 saw the NASDAQ Composite High hitting a value of 5056.06, which was a new high after 15 long years. Recently, after the Presidential win of Donald Trump, the composite index hit a value of 5403.86.
Composition of NASDAQ
The NASDAQ Composite Index has companies that trade on the NASDAQ. A majority of them are Internet and technologically related, but there are companies that belong to the industrial, financial, biotech and consumer sectors as well. Technology companies constitute about 40% of the composite and about 20% belong to the consumer services sector. To be included in the NASDAQ Composite Index, the US listing of the concerned security must be exclusively on the NASDAQ Stock Market, the only exception being that was continually listed on another market of the US on or before the date January 1, 2004.
If at any point in time there is a security that does not meet any of the eligibility criteria, then it is removed from the NASDAQ Composite Index.
NASDAQ Composite Index – Inclusion Methodology
The market capitalization weighted methodology is used to calculate composite index value. The value of the index is calculated thus. The total index value is equal to the share weight of each of the component securities multiplied by the last known price of the concerned security. The final value obtained is thereafter adjusted by a divisor which scales the value for the purpose of convenience in reporting. The composite index is continuously calculated throughout a trading day and reported once in a second. However, the final confirmed value is reported at 4.16 pm on a trading day.
The NASDAQ Composite Index has two versions that are calculated every time. They are the Price Return Index and the Total Return Index. The two index values were synchronized on September 24, 2003, when the market closed. The Total Return Index includes all reinvestments of cash dividends as on the dividend ex-dates. Both the indices also include non-dividend cash distributions.
All the changes in price that occur due to actions such as stock splits, spinoffs, and stock dividends are made on the specific action’s ex-date. However, the total number of shares that may be outstanding due to stock repurchases, conversions, acquisitions and secondary offerings are made on the night prior to the specific action’s effective date.
Eligibility requirements of the securities that make up the index are constantly monitored. Any security that falls short of the requirements may be removed any time from the index at the last sale price of the security.