Nasdaq Composite Index

Overview

The Nasdaq Composite Index tracks more than 2,500 equity securities listed on the Nasdaq stock exchange. Market-capitalization-weighted, it includes U.S. and international common stocks, American Depositary Receipts (ADRs), REITs, and publicly traded partnerships. The index is heavily weighted toward technology companies, making it a widely used barometer for the tech sector and a measure of market sentiment and volatility.

Key takeaways

• Market-cap-weighted index of 2,500+ Nasdaq-listed securities.
• Includes common stocks, ADRs, REITs, and publicly traded partnerships; excludes closed-end funds, ETFs, preferred shares, warrants and other derivatives.
• Launched in 1971 with a base value of 100.
• Two versions exist: price return and total return (the latter assumes reinvested cash dividends).
• Dominance of large-cap tech firms increases volatility relative to broader indexes like the S&P 500.

Composition and eligibility

The Nasdaq Composite includes nearly all ordinary equity securities listed on Nasdaq that meet eligibility rules. Corporate actions (splits, spinoffs) are handled on ex-dates; conversions and acquisitions are typically recorded overnight. Eligibility is reviewed continuously and securities that no longer meet requirements can be removed, usually at their last sale price.

Calculation and maintenance

The index value is computed by summing the market capitalizations of component securities and adjusting by an index divisor. It is calculated continuously during trading hours and updated every second. Two primary index series are maintained:
* Price return index — reflects price changes only.
* Total return index — assumes reinvestment of cash dividends.

Corporate-action adjustments and methodology rules determine how changes are applied to component weights and market-cap calculations.

Sector influence and top holdings

Because the index is market-cap-weighted, the largest companies exert the biggest influence on performance. The Nasdaq Composite is known for a strong technology tilt but also includes consumer discretionary, healthcare, financials, and other sectors.

Typical top-weighted constituents (example weights at a recent point):
* Apple (AAPL): ~13.8%
Microsoft (MSFT): ~11.4%
Amazon (AMZN): ~6.0%
NVIDIA (NVDA): ~4.7%
Tesla (TSLA): ~3.8%
Alphabet Class A (GOOGL): ~3.2%
Alphabet Class C (GOOG): ~3.2%
Meta Platforms (META): ~2.9%
Broadcom (AVGO): ~1.6%
* PepsiCo (PEP): ~1.2%

Weights change over time as market caps and index composition evolve.

Returns and volatility

Historically, the Nasdaq Composite has delivered strong long-term returns but also significant drawdowns due to its concentration in volatile technology stocks. For example, the index produced notable multi-year gains but experienced steep declines during crisis periods (e.g., financial crisis and the COVID-19 market shock). Large quarterly and monthly swings are common, and the index has entered bear-market territory at times when it fell more than 20% from a recent peak.

How to gain exposure

You cannot invest directly in the Nasdaq Composite Index. Instead, investors can gain exposure through mutual funds and exchange-traded funds (ETFs) that seek to replicate the index’s composition and weightings. These funds offer a convenient way to capture broad Nasdaq performance.

Benefits of index-based investing

• Broad market exposure across many securities and sectors.
• Passive management that mirrors index changes rather than frequent active trading.
• Lower potential manager bias and typically lower costs than actively managed portfolios.
• Automatic rebalancing by index providers when component eligibility or weights change.

Bottom line

The Nasdaq Composite Index is a key benchmark for technology-heavy equities and a useful indicator of market trends and investor sentiment in growth-oriented sectors. Its market-cap weighting and concentration in large tech firms can drive strong long-term returns but also above-average volatility. Investors seeking similar exposure can use mutual funds or ETFs that track the index, while remaining mindful of the index’s top-heavy structure and sector sensitivity.