The Nasdaq Composite is a stock market index that tracks eligible securities listed on the Nasdaq Stock Market. It was created in 1971 and is designed to give a broad view of that market rather than follow a small selection of large companies. If you want the broader context behind the market and its major indexes, see our guide to Nasdaq.

More than 3,000 companies are represented, including businesses of very different sizes and from different industries. That broad coverage is what makes the index useful, but there is an important detail behind its daily number: those companies do not have equal influence.

The Composite is weighted by market capitalization, so a very large company can affect the index far more than a smaller one. Understanding that weighting makes it much easier to make sense of what the index is actually telling you.

What the Nasdaq Composite Measures

The purpose of the Nasdaq Composite is fairly straightforward. It measures the performance of domestic and international common-type stocks listed on the exchange, giving investors a broad benchmark for that market.

It is not designed to select the “best” companies or only the biggest ones. A large established business and a much smaller company can both be included if their securities meet the index’s eligibility requirements.

Technology has a large presence, which is one reason the Composite is often associated with technology stocks. But its coverage is wider than that. The index includes companies from multiple industries and across a wide range of market values.

That distinction matters when you see the index move. A rise in the Composite does not mean technology stocks were the only reason for the gain, just as a decline does not necessarily mean every smaller company was falling.

What Can Be Included in the Index?

The eligibility rules are broader than simply saying “stocks listed on the exchange.”

Generally eligible security types include common stocks, American Depositary Receipts, ordinary shares, limited partnership interests, and shares or units of beneficial interest. The methodology generally excludes products such as ETFs, preferred stocks, rights, warrants, closed-end funds, convertible debentures, units and other derivative securities.

There is also an important listing rule: a security must be listed exclusively on the Nasdaq Stock Exchange to qualify. There is no separate geographic or country restriction, so eligible companies from outside the United States can be part of the index as well.

If a company has more than one listed class of security, those classes can qualify separately if they meet the other requirements. The result is an index with a much broader membership than a benchmark built around a fixed group of large companies.

Why a Large Company Can Move the Index So Much

The number of companies in the index can make its weighting easy to misunderstand. More than 3,000 securities are represented, but they do not each contribute the same amount to the index.

The Composite uses total listed market capitalization. That means a company’s weight is based on its total shares outstanding multiplied by its share price. The methodology does not adjust that figure for public float and does not place a concentration cap on an individual company’s influence.

Imagine a very large company and a much smaller company both gaining 5%. The percentage gain is identical, but the larger company’s move has a much greater effect on the index because its market value is much larger.

This is also why the Composite can rise while many individual stocks are falling. Strong gains in several major constituents can outweigh losses among a much larger number of smaller stocks.

The reverse is true during a sell-off. A sharp decline in a few very large companies can pull the index down even if many smaller constituents are holding up better.

So the Composite’s daily percentage change should not be read as the average performance of every stock inside it.

The Index Does Not Stay the Same

The membership changes as the listed market changes.

New eligible listings enter the Composite on their second day of trading. Securities can leave when they are delisted or no longer meet the requirements for inclusion.

That means a new company does not have to wait for an annual reshuffle before becoming part of the benchmark. This is different from indexes that regularly review a fixed group of companies and make additions or removals at scheduled intervals.

Existing companies can also become more or less important without entering or leaving the index. A rising share price or growing number of shares can increase a company’s market capitalization and therefore its weight. A falling market value has the opposite effect.

Why the Nasdaq Composite and Nasdaq-100 Can Diverge

The two indexes contain many of the same large companies, but they are not built to measure exactly the same part of the market.

The Composite has broad coverage across eligible securities. The Nasdaq-100 is limited to 100 large non-financial companies and uses additional rules to control the influence of its largest constituents.

That difference is normally easy to overlook because the biggest companies make up a significant share of the Composite too. On many trading days, the two indexes therefore move in similar directions.

They can separate when smaller companies, mid-sized companies or financial stocks move differently from the large non-financial businesses that dominate the Nasdaq-100. A very large new listing can create another noticeable difference: the Composite can include it on its second trading day using its full listed market capitalization, while the Nasdaq-100 has separate eligibility and weighting rules.

This is why two Nasdaq-related numbers can sometimes show noticeably different returns. The difference is not necessarily a data error. The indexes are measuring different groups of securities under different rules.

What the Composite Can Tell You

The Nasdaq Composite is most useful as a broad benchmark for the securities listed on the exchange.

Its strong technology exposure makes it relevant when investors are watching technology and growth-oriented parts of the market, but the index is not a technology-only measure. Its membership extends across multiple industries and company sizes.

It can also put individual stock moves into context. If a major company falls sharply but the Composite barely changes, gains elsewhere may be offsetting the decline. If the index falls heavily, the largest constituents may be responsible for much of that move.

What it cannot tell you is how the average constituent performed. Market-cap weighting means the experience of a small company and the experience of a mega-cap company can be very different even when they are both represented by the same index.

It is also not a complete measure of the U.S. stock market. Its universe is based on listing and eligibility, while benchmarks such as the S&P 500 use different selection rules and cover a different group of companies.

What Can Push the Index Higher or Lower?

The largest constituents are usually the first place to look because their weights give them more influence.

A major earnings report can move the index when a large company’s stock reacts strongly to results or guidance. The same can happen after important company news, especially when the business is large enough to have a meaningful weight.

Interest-rate expectations can matter too. Investors may change what they are willing to pay for companies with high expected future growth when their outlook for rates changes. Economic reports can influence those expectations by changing views on inflation, employment and the broader economy.

Technology stocks can have a particularly noticeable effect because they represent a large part of the index. A broad move across major technology companies can therefore push the Composite even when other parts of the market are relatively quiet.

There is no single reason behind every daily move. Often, several factors are affecting different companies at the same time.

How Investors Track the Nasdaq Composite

You cannot buy an index directly because an index is a measurement, not an asset that you own.

Investors can instead use a fund designed to track its performance. Nasdaq’s current index information lists the Fidelity Nasdaq Composite Index Tracking ETF, which trades under the ticker ONEQ, among products linked to the benchmark.

Another approach is simply to use the Composite as a benchmark. An investor can compare a portfolio’s performance with the index to see how it has done against this broad group of listed securities.

The important thing is to check what an investment product actually tracks. A fund following the Composite can have a very different portfolio from one following the Nasdaq-100, even though both are associated with the same market.

Nasdaq Composite vs. S&P 500

The two indexes cover different parts of the market.

The Nasdaq Composite is built from eligible securities listed on one exchange and includes companies across a wide range of sizes. The S&P 500 is designed to represent large U.S. companies using its own eligibility and selection process.

Their sector exposure is different as well. The Composite has a much stronger technology presence, while the S&P 500 spreads its weight across a broader group of large U.S. businesses.

That can lead to very different daily results. A strong rally in large technology companies may give the Composite a bigger boost, while a major move in another large-cap sector may have a greater effect on the S&P 500.

Neither benchmark is a complete picture of the stock market. They simply measure different groups using different rules.

Common Questions About the Nasdaq Composite

How many companies are in the Nasdaq Composite?

The index includes more than 3,000 companies, although the exact number changes as eligible securities are added or removed.

Can the Nasdaq Composite rise when many stocks are falling?

Yes. Because the index is market-cap weighted, large companies have much more influence than smaller ones. Gains among major constituents can outweigh declines across many smaller stocks.

Does the number of companies stay fixed?

No. New eligible listings can enter on their second trading day, while securities can leave when they are delisted or no longer qualify. The weights of existing companies also change as their market values change.

Is the Nasdaq Composite an equal-weighted index?

No. Companies with larger market capitalizations have greater influence on the index. It uses total listed market capitalization rather than giving every security the same weight.

Why can the Nasdaq Composite and Nasdaq-100 show different returns?

They cover different groups and use different methodologies. The Composite is broad, while the Nasdaq-100 focuses on 100 large non-financial companies and applies additional weighting controls.