- The Nasdaq is a tech-focused stock market index
- It tracks 3,200 companies, and is used as a gauge of tech sector strength
- Today, tech companies make up only 45% of the index
It’s all “daq” and a bag of chips. Here’s everything you need to know about the Nasdaq Composite (ticker: IXIC), an American stock market index.
What’s a stock market index?
If the stock market is a giant jigsaw puzzle, you can think of an index as a magnifying glass. In the case of the Nasdaq, your magnifying glass allows you to take a closer look at a particular part of the puzzle, giving you a clearer picture of the finished product.
But before we get too far into the weeds, let’s start with the stock market, which is where stocks, bonds, and other assets are bought and sold.
When talking about the stock market, you generally hear people using a stock market index in reference to the market’s performance.
A stock market index, then, is an index, or measurement, of a market. Specifically, an index is a tool (like a magnifying glass) used to examine, express, or describe what’s happening in a stock market.
An index is simply a curated list of certain securities. A security is an investment product, including stocks, bonds, and mutual funds.
What is the Nasdaq?
The Nasdaq is an index with a high concentration of technology stocks. If it were a Spotify playlist, it would consist of the most popular electronic and EDM artists.
But wait, there’s more.
The Nasdaq can also refer to a stock exchange, the Nasdaq Stock Market. The Nasdaq market — which is an acronym for the National Association of Securities Dealers Automated Quotations exchange — is the second-largest exchange in the world behind the New York Stock Exchange.
Good to know: When people refer to how the Nasdaq “did” or “performed”, however, they’re talking about the index, not the exchange.
It’s the index provides a statistical measurement of the market’s behavior.
What’s in the Nasdaq?
The Nasdaq consists of the stocks of more than 3,200 companies. In addition to Amazon, Apple, and Facebook, other tech names include Google’s parent company Alphabet, computer network router maker Cisco Systems, and computer software and services giant IBM.
While the Nasdaq is known as a technology index–it became extremely popular in the Dotcom era of the 1990s–the number of tech companies in it has decreased over time, and now only make up 45% of the index, according to the Wall Street Journal.
The index also holds the stock of biotech and pharmaceutical companies, as well as business services, insurance, and telecommunications companies, among others.
Other important indexes
The Nasdaq is among the most important stock indexes in the U.S., along with the Dow Jones Industrial Average, S&P 500, and the Russell 3000, which measures the stocks of smaller companies.
Something to keep in mind: Sometimes big companies can appear in multiple indexes simultaneously.
For example, Apple and Microsoft are both in the Dow, the S&P 500 and the Nasdaq.