NASDAQ-100 Index: Definition, Components & Historical Data

The NASDAQ-100 Index is a stock market index that includes 100 of the largest, most actively traded, non-financial companies that are listed on the Nasdaq Stock Market. A stock market index helps investors compare current and past price levels in order to calculate the overall market’s performance.

The NASDAQ-100 Index includes many industries, such as technology, retail, industrial, telecommunication, healthcare, transportation, and media. The top companies included are all from the technology sector and include Microsoft Corp, Apple Inc., and Amazon.com Inc. Because of the fact, the NASDAQ-100 Index is somewhat known as a technology index.

History of the Nasdaq 100 Index

The National Associate of Securities Dealers (NASD) started the NASDAQ-100 Index in 1985, along with NASDAQ Financial-100, which focuses on solely financial companies, which is why the NASDAQ-100 Index does not include any financial companies.

Companies must meet the standards set by Nasdaq in order to be part of the index. More specifically, it requires that companies are listed exclusively on a Nasdaq exchange, in addition to considering a company’s market capitalization and liquidityLiquidityIn financial markets, liquidity refers to how quickly an investment can be sold without negatively impacting its price. The more liquid an investment is, the more quickly it can be sold (and vice versa), and the easier it is to sell it for fair value. All else being equal, more liquid assets trade at a premium and illiquid assets trade at a discount..

Also, Nasdaq imposes some more specific requirements, such as achieving an average daily volume of 200,000 shares and being listed on the market for at least three months. Interestingly, it was limited to 100 originally; however, today, it consists of 107 equity securities issued by 100 companies.

How the Index Works

The NASDAQ-100 Index is a modified capitalization-weighted indexCapitalization-Weighted IndexThe Capitalization-Weighted Index (cap-weighted index, CWI) is a type of stock market index in which each component of the index is weighted relative to its total market capitalization. In a capitalization-weighted index, companies with larger market capitalization exert a greater impact on the index value.. It means that stocks are weighted according to the total market value of their outstanding shares. As a company’s stock price changes, its stock index’s value changes as well.

Interestingly, the index is not rebalanced often. However, when it is time for a rebalancing, Nasdaq will review the companies included, re-rank eligible companies, and make adjustments. For example, in 2017, Wynn Resorts, Ltd. replaced TripAdvisor, Inc.

When they decide to review, Nasdaq will look at share prices and publicly announced share totals. Once they’ve been ranked, companies ranked 101st to 125th will only stay if they were in the top 100 in the previous year. However, if they are not able to move back into the top 100 that year, they will be dropped. If they are ranked over 125, they will be dropped regardless.

Importance of the NASDAQ-100 Index

The NASDAQ-100 Index is important because it plays a large role in the local and global economyEconomic IndicatorsAn economic indicator is a metric used to assess, measure, and evaluate the overall state of health of the macroeconomy. Economic indicators. It advises society and investors of the top companies outside of the financial sector. For companies, it is an extremely well-known, well-trusted exchange for them to list their shares on.

If they were to be listed on the index, it could strongly affect their financial success. Also, the index is known for including companies that are at the forefront of innovation in all included industries. More generally, Nasdaq, as a whole, provides a lot of employment opportunities.

Example

In 2017, Company X was an extremely well-known technology sector company that specializes in social media, specifically in making fun captions that users can post on their respective profile pages. Because of their successes, they were able to join the NASDAQ-100 Index in that year.

However, in 2018, consumers started to really become interested in upcoming social media companies that incorporated photos and videos into their applications, such as Company Z. As Company X became less popular, it fell to the 103^rd position on the NASDAQ-100 Index. Still, it was able to maintain its position on the index due to its position in the previous year.

In 2019, however, Company X ranked 126th and fell off the index. On the other hand, Company Z ranked 88^th in the same year and thus, replaced Company X on the NASDAQ-100 Index.

Additional Resources

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