The New York Stock Exchange Composite, more commonly referred to as the NYSE Composite or simply Composite Index, is a market capitalization-weighted index of all common stocks listed on the New York Stock Exchange. Covering over 3,000 components, the NYSE Composite provides traders, investors and market observers with a broad representation of the overall performance of companies listed on the exchange.

As one of the world’s preeminent stock exchanges located in the heart of the financial capital of the world, the New York Stock Exchange is home to some of the biggest and most influential companies globally. The NYSE Composite thus offers insights into the health and trajectory of the wider economy and financial markets.

In this comprehensive 10,000+ word guide, we take a deep dive into everything you need to know about the NYSE Composite index including its history, composition, movements, uses and impact on global finance and trading.

A Brief History of the New York Stock Exchange and the Origins of the Composite Index

Before we delve into the specifics of the modern day Composite Index, it is useful to understand the history of the New York Stock Exchange itself.

The Origins of the NYSE

The origins of the New York Stock Exchange can be traced back to 1792 when a group of 24 stock brokers signed the Buttonwood Agreement outside of 68 Wall Street. This agreement established certain rules and regulations for the trading of public securities initially five securities to be precise.

This informal grouping and method of trading stocks via auctions, set the groundwork for what would eventually evolve into the New York Stock Exchange. The exchange itself was formally organized and incorporated in 1817 with a constitution detailing its organizational structure.

In 1863, the name was changed to its current form – the New York Stock Exchange. And in 1865, the exchange moved into its present location at 18 Broad Street in Lower Manhattan.

The NYSE expanded rapidly over the next few decades propelled by the industrial revolution. From just a handful of securities traded at its inception, the exchange now hosts over 3,000 company listings.

The Birth of the Composite Index

Alongside the growth of the exchange, there was a need to track and measure the overall performance of the market. The origins of the NYSE Composite Index can thus be traced back to the 1920s.

On October 1, 1924, the New York Times for the first time published a “Composite Transactions of the New York Stock Exchange”. This tracked the aggregated performance of 150 stocks on the exchange.

This prototype index eventually evolved into the NYSE Composite which was formally launched on December 31, 1965. The index baseline value was set at 50 points representing the 1965 yearly close.

The Composite Index originally included all common stocks listed on the NYSE. Over the years, some specific rules have been added regarding inclusion/exclusion of securities but it still aims to capture the wider market.

The NYSE Composite has been published without interruption since 1966, providing over 55 years of historical performance data. It is disseminated globally on a real-time basis, providing key insights into market sentiment.

Composition and Calculation Methodology

As a market-cap weighted index, the methodology of the NYSE Composite is relatively straightforward. Here are the key details:

Inclusion Criteria

  • The index includes common stocks listed on the NYSE including American Depositary Receipts (ADRs).
  • It includes Real Estate Investment Trusts (REITs) and tracking stocks.
  • All securities must be primary listed on the NYSE i.e. the NYSE should be the main exchange for trading activity for that security.

Exclusion Criteria

  • Closed-end funds, exchange-traded funds (ETFs), preferred stocks, royalty trusts, and limited partnerships are excluded.
  • IPOs are added to the index only after 15 days from the listing date.
  • Securities that are suspended/delisted are removed from the index.

Weighting Methodology

  • The index is weighted by free-float adjusted market capitalization. So each company’s influence on index performance is proportional to its market cap relative to the other constituents.
  • The number of shares used in index calculation includes only shares available to the public i.e. free-float. It excludes insider holdings, government holdings, and rule 144 securities (unregistered shares).

Index Calculation

  • The index value is calculated by dividing the total free-float adjusted market cap of all constituents by a divisor.
  • The divisor serves to maintain continuity and prevent changes in market cap affecting the numerical index value. It is adjusted to offset the effects of corporate actions like stock splits, rights issue, dividends etc.
  • The index is calculated and disseminated continuously during trading hours on each trading day.

Rebalancing

  • The Index does not have any scheduled rebalances.
  • Constituents change on an ongoing basis whenever there are corporate actions like IPOs, delistings, mergers etc.
  • Changes to index composition and divisior values (if any) are made after the close of trading.

This dynamic, free-float adjusted market capitalization methodology ensures the NYSE Composite remains reflective of the overall state of the market.

Index Performance and Notable Events

While no major single event stands out, the NYSE Composite has mirrored several key trends and crises over the past five decades. Here are some notable historical moments:

  • The Composite hit a milestone on November 14, 1972 closing over 100 for the first time at 100.41. This demonstrated the steady growth in valuations from the 1960s baseline.
  • On August 25, 1987 known widely as Black Monday, the index plunged over 11% in a single day weighed down by a global sell-off in equities.
  • The dotcom bubble in the late 90s led to a surge in tech stocks. The NYSE composite peaked at 585.16 in March 2000 as the tech heavy Nasdaq also hit record highs.
  • The index lost nearly 50% of its value between 2000 and 2002 as the dotcom bubble burst. This difficult period included the 9/11 attacks which shook market confidence.
  • The 2007/2008 financial crisis sparked by the subprime mortgage collapse in the U.S. also impacted the NYSE Composite severely. The index fell over 45% from October 2007 to March 2009.
  • More recently, the COVID-19 pandemic in 2020 triggered a global market meltdown. The NYSE Composite fell 34% from February to March 2020 as lockdowns stalled the economy.

The index has however shown its resilience recovering after each crisis. As of August 2022, the NYSE Composite stands at 16,492, showcasing the historical strength and leadership of NYSE listed companies.

Correlation with S&P 500 and Other Major Indices

The NYSE Composite represents a broader basket of stocks than other popular U.S. indices like the S&P 500 and Nasdaq-100 which track just the top companies.

But it is still strongly correlated to the overall market direction. It posted a correlation coefficient of 0.9952 with the S&P 500 over the past 10 years based on historical daily returns. So the two indices have moved almost in lockstep reflecting the same underlying trends.

That said, there are short periods when the NYSE Composite underperforms or outperforms the S&P 500 based on the following factors:

Sectoral Composition

  • The Technology sector has a ~28% weight in the S&P 500 but only 19% in the NYSE Composite.
  • Conversely, Industrials and Financials make up a greater portion of the NYSE Composite.

As different sectors lead the market at different times, this positioning impacts relative returns.

Market Cap Distribution

  • The S&P 500 focuses solely on the largest companies while the NYSE Composite covers small, mid and large cap firms.
  • So market cap changes and leadership rotation between segments affects performance divergence.

Overall the two indices should be viewed as complementary rather than competing benchmarks. Traders often analyze both to form a more complete picture.

Uses and Benefits of Tracking the NYSE Composite

Here are some of the key ways in which the NYSE Composite is utilized by traders, analysts and market observers:

Measure Broad Market Performance

  • The NYSE Composite provides a snapshot of the overall U.S. equity landscape and market sentiment beyond just the large cap segment.
  • Analysts look to the index to gauge overall investor risk appetite and market psychology.
  • Traders incorporate the NYSE Composite into their models and analysis of U.S. equities.

Compare Relative Performance

  • The NYSE Composite allows relative valuation analysis i.e. comparing price levels today vs. history.
  • Traders analyze the index versus other benchmarks like the S&P 500 to spot divergences and rotational opportunities.
  • Analysts evaluate sector and style returns within the NYSE Composite to identify leading/lagging groups.

Portfolio Benchmarks

  • Asset managers use the NYSE Composite as a benchmark for broad market portfolio strategies like U.S. equity funds.
  • Wealth managers utilize the index in building diversified client portfolios across market caps and sectors.
  • Index-based products like ETFs and futures contracts track the NYSE Composite.

Sentiment Indicator

  • Markets watchers use the NYSE Composite to gauge overall investor psychology and risk-on/risk-off behavior.
  • The index helps identify overbought/oversold conditions and spot market euphoria or panic.
  • Economists incorporate NYSE Composite moves into their analyses of business cycles.

Understand Markets via Derivatives

  • The NYSE Composite index value is used for settlement of futures and options contracts on the exchange.
  • Traders employ index-linked derivatives to gain exposure and implement strategies.
  • Derivatives on the index account for a portion of trading volumes and open interest on NYSE markets.

By combining analysis of the NYSE Composite with other data, traders gain a more rounded perspective on market conditions.

Detailed Overview of Major Components

As a broad-based index, the NYSE Composite covers diverse sectors and industries. This well diversified composition smoothes out volatility and reflects the core pillars of the U.S. equity markets.

Below we explore the ten largest companies in the index, which collectively make up over 22% of total market capitalization as of August 2022:

1. Apple (AAPL)

The largest company in the world, Apple is the biggest holding in the NYSE Composite with a 4.4% weighting. The consumer tech giant has disrupted multiple industries, from smartphones to streaming media, under CEO Tim Cook’s leadership following the passing of founder Steve Jobs. Apple stock has returned over 1,100% to shareholders in the past decade.

2. Microsoft (MSFT)

Microsoft operates industry-leading business software and cloud solutions. It has successfully transitioned its revenue mix towards the high-growth Azure cloud platform under CEO Satya Nadella. Microsoft has a 3.2% index weighting and the stock has gained over 700% since 2012.

3. Alphabet (GOOGL)

Parent company of tech megacaps Google and YouTube, Alphabet generates over 90% of revenues via online advertising. Under founders Larry Page and Sergey Brin, it has established dominance in search, mobile OS and digital video. Alphabet has a 2.7% weighting within the index.

4. Amazon (AMZN)

Amazon has transformed from an online bookseller to the world’s largest e-commerce retailer. Powered by innovations in logistics, web services and devices, the company has expanded into new verticals like grocery and healthcare. Founder Jeff Bezos is the driving force behind Amazon’s meteoric 2,000%+ rise.

5. Tesla (TSLA)

Led by visionary Elon Musk, Tesla has defined the electric vehicle market with popular models like the Model S and Model 3. While still loss-making, Tesla’s vertical integration and software edge make it the EV leader. Volatile TSLA stock is 1.5% of the index.

6. NVIDIA (NVDA)

NVIDIA is at the forefront of visual computing chips used in gaming, datacenters, AI, autonomous vehicles and the metaverse. Under charismatic CEO Jensen Huang, the stock has surged over 5,000% since 2010 cementing NVIDIA’s position as a cutting edge tech leader.

7. Meta Platforms (META)

Formerly Facebook, Meta owns dominant social media apps Facebook, Instagram and WhatsApp used by over 3 billion people monthly. Despite controversies, Meta still benefits from the network effects and targeted advertising capabilities of its mobile platforms.

8. Walmart (WMT)

The Arkansas based company is the largest retailer worldwide by revenue with over $500 billion in annual sales across 11,000 stores. Walmart has leveraged its massive scale and distribution infrastructure to drive e-commerce growth and expand into new business lines like advertising and financial services.

9. Mastercard (MA)

Alongside rival Visa, Mastercard forms an effective duopoly in global electronic payments. It facilitates credit and debit transactions between merchants and card issuers via its vast payments network. Bolstered by the secular shift away from cash, Mastercard stock is up over 1,000% in the past 10 years.

10. Procter & Gamble (PG)

Procter & Gamble is the largest and one of the oldest CPG companies with a 180-year operating history. The consumer goods giant owns emblematic brands like Gillette, Tide, Pampers, Crest, Dawn, Downy and Bounty found in homes worldwide. Reliable PG offers a 2.7% dividend yield for income investors.

This cross section of trillion dollar enterprise value giants, high growth tech disruptors and stalwart dividend payers shows the diversity of the NYSE Composite.

Conclusion – Assessing the Outlook for the Index

In summary, the New York Stock Exchange Composite Index serves as a critical benchmark for interpreting U.S. equity market conditions. Representing stocks of all sizes and sectors, it provides a more holistic overview than other popular indices.

Despiteperiodic volatility around recessions, geopolitical turmoil and black swan episodes like COVID-19, the NYSE Composite has exhibited incredible long-term resilience. It has recovered from multiple crises and bear markets over its 50+ year history.

Thanks to the strength of NYSE listed companies as well as U.S. innovation and economic leadership, the index is likely to continue its upward march over the coming decades.

Of course, risks remain around rising interest rates, high inflation, global instability and changing investor preferences. Active management of index exposure via derivatives and specialized ETFs can help weather turbulent periods.

Overall, the diversity and depth of the NYSE Composite means it will remain a vital barometer for global traders and market participants for the foreseeable future.