The Nasdaq Stock Exchange was founded in 1971 by a group that would eventually become known as the Financial Industry Regulatory Authority (FINRA). For these reasons, analysts consider capitalization-weighted indexes to be a more accurate method of asset allocation. Stock splits make a tremendous difference to price-weighted indexes, since the newly split stock has a lower price. The valuation for these components is based on share price, which gives companies with higher share prices a bigger impact on the index overall. Other stock market indexes, such as the Dow, are price-weighted indexes. To calculate a company’s market cap, simply multiply the current price of one share by the number of outstanding shares. The Nasdaq is a capitalization-weighted index, which means that each component is valued by market cap, or the total value of all outstanding shares. While the S&P 500 is known for large-cap stocks, and the Dow has some of the oldest and most well-known dividend-paying companies, the Nasdaq is synonymous with technology. This index tracks the stocks listed on the Nasdaq stock exchange and is denoted with the symbol IXIC.Īlong with other stock indexes like the S&P 500 and the Dow Jones Industrial Average (aka the Dow), the Nasdaq Composite Index is known as a bellwether index because it represents an entire category of investment, and its performance reflects big-picture economic trends. When investors want to know how tech stocks, in general, are doing, they turn to the Nasdaq Composite Index.

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Xs70 from Getty Images Signature Canva What Is the Nasdaq Composite? Contents And the Nasdaq tends to be weighted heavily in favor of big technology companies, since those are the kinds of companies that dominate that exchange.The Nasdaq is synonymous with technology.

In fact, the S&P 500's market weighting in financials is a big reason why it's been trailing the Dow. The S&P 500 tends to more closely follow the entire market. The Dow tends to be the blue-chip index and a measure of the biggest companies, but leans heavily toward what the stocks with the highest share prices are doing. Just these two characteristics can create three very different indexes. And the Nasdaq composite includes only stocks that are traded on the Nasdaq market. The S&P 500 tends to be broader, hoping to have a bigger representation of companies from various sectors and industry groups. The Dow tracks the value of 30 large companies which tend to be blue-chip firms that are household names. Another key aspect that determines the value of indexes is the type of companies that are included. That means the companies with the greatest total market value hold the most sway in the Nasdaq. The Nasdaq composite index, lastly, is weighted based on market value. Large companies that have big slices of their company held by a founding family, and the shares don't trade in the public's hands, don't count as much in the value of the S&P 500 index. That means the companies with the greatest value of shares available to be traded are given the largest weighting in the index. The Standard & Poor's 500 index is weighted by market float of shares. That means that IBM, trading for nearly $200 a share, has a much greater weighting than Bank of America, which trades for less than $10 a share. The Dow Jones industrial average gives greater weight to stocks with the highest per-share price. And the differences can be big between indexes. The value of a market measure is the result of a mathematical calculation.

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