NYSE Composite Index | Seeking Alpha

The NYSE Composite Index comprises every stock listed on New York Stock Exchange. To be listed on the NYSE, companies mus exchange requirements of the NYSE of the index’s constituent companies, which are strictly vetted, and the index’s global diversification, with non-U.S. based companies accounting for over one-third of the index’s total market capitalization.

What Is The NYSE Composite Index?

The NYSE Composite Index (NYA) is a measure of the performance of all common stocks that are listed on the New York Stock Exchange, including those of foreign companies. The NYSE Composite Index is calculated based on the total return and price return of stocks excluding dividend amounts, and its large breadth provides a more accurate measure of market performance than those of indexes having fewer constituents.

NYA Index Measures

• Real estate investment trusts (REITs): companies that own or finance income-producing real estate across multiple property sectors; most REITs trade on major stock exchanges
• American Depository Receipts (OTC:ADRS): a negotiable security that represents the securities of a foreign company and allows that company’s shares to trade in U.S. financial markets
• Tracking stocks: also known as letter stocks or targeted stocks are a specialized equity offering issued by a company and based on the operations of a wholly-owned subsidiary of that company, the tracking stock is then traded at a price related to the operations of the division that is being “tracked”; tracking stocks typically have no voting rights.

NYA Index Doesn’t Measure

• Derivatives: financial contracts that derive their value from an underlying asset, a group of assets, or a benchmark; derivatives trade on an exchange or over the counter
• Exchange traded funds (OTC:ETFS): a basket of securities, such as stocks and bonds, that tracks an underlying index
• Limited partnerships: when two or more partners go into business together with one being a general partner and the limited partners only liable up to the amount of their investment; limited partnerships have little to no reporting requirements
• Preferred stocks: holders of preferred shares typically have no or limited voting rights but have a higher claim on distributions such as dividends, in the event of a liquidation their claims are greater than those of common stockholders but less than those of bondholders
• Trust Units: established under a trust deed, a unit trust pools investors’ money into a single fund that is managed by a fund manager and includes stocks, bonds, gilts, properties, mortgages, and cash equivalents; the number of units is not stagnant
• Closed-end funds: a type of mutual fund that issues a fixed number of shares through a single initial public offering (IPO), its shares can then be bought and sold on a stock exchange but no new shares will be created and no new money will flow into the fund.

How the NYSE Index Works

Currently, the NYSE Composite Index is comprised of around 2,800 companies. Taking into account market capitalization, around one-third of NYA’s total capitalization comes from international companies including those from Japan, Mexico, Canada, China, and the United Kingdom. In all, NYA includes companies from at least 38 different countries around the world.

The NYSE Composite Index uses market capitalization to assign weights to the index’s constituents. Market capitalization is calculated by multiplying the outstanding number of shares by the current market price per share.

Besides net asset value and annual sales figures, market capitalization is used to determine the value of a company. Investors often diversity their portfolios to include a mix of:

• Large-cap stocks: companies having a market capitalization of $10 billion or greater
• Mid-cap stocks: companies having a market capitalization ranging from $2 billion up to $10 billion
• Small-cap stocks: companies having a market cap of $300 million to $2 billion.

The NYSE Composite Index is calculated using the last trading price of the individual securities comprising the index, with companies constantly being added to or deleted from, the index. Constituent companies’ actions, including stock splits, stock dividends, and issuance of new shares, all cause adjustments to the index. The index constituents are then weighted according to their free-floating market capitalization, and the index itself is calculated based on price return and total return.

NYSE Industry Categories & Constituents

The composite NYSE Composite Index is supplemented by separate indexes covering four industry sectors:

• Industrial: companies that make and sell machinery, equipment, and supplies used in manufacturing, resource extraction, and construction
• Utilities: companies that provide water, electricity, natural gas, sewage services, and dams
• Transportation: companies that provide services to move people or goods, including air freight and logistics, airlines, marine, railroads, trucking, airport services, and highways
• Financial companies: companies that provide banking, investing, and insurance, with financial services being the activities of financial services companies and financial products being the goods, accounts, and investments that they provide.

History of the New York Stock Exchange Index

The NYSE Composite Index launched in 1966 and was administered by the Securities Industry Automation Corp until 2003. Now it is administrated by the Intercontinental Exchange, a holding company.

NYSE Composite Compared to Other Indexes

S&P 500 Index

In the U.S., the most broadly followed indexes are the Standard & Poor’s 500 Index, the Dow Jones Industrial Average, and the Nasdaq Composite Index. In 2004, 2005, and 2006, NYA outperformed DJIA, the Nasdaq Composite, and the S&P 500.

The Standard & Poor’s 500 Index, more commonly known as the S&P 500 is comprised of 500 U.S. companies selected by their capitalization, liquidity, sector classification, financial viability, and public float. The S&P 500 Index is capitalization-weighted, meaning that every stock in the index is represented in proportion to its total market capitalization. That means if the total market value of all 500 companies were to drop by 5%, the value of the index would drop by 5% as well. Movement in the S&P 500 Index reflects movement in the U.S. market as a whole. Alternatively, an index can be “equal-weighted” which means each company represents an equal weight in the index. An index can also be “price-weighted”, which we’ll get to shortly.

Dow Jones Industrial Average Index

The Dow Jones Industrial Average, also known as DJIA, is comprised of the stocks of 30 of the largest and most influential U.S. companies. As of this writing, companies included in the DJIA include Boeing, Walmart, American Express, Microsoft, Apple, and McDonald’s. DJIA differs from the S&P 500 in that it is price-weighted. This causes a larger effect to be felt on the DJIA if there is a $1 change in a $100 stock than if there is the same $1 change in a $10 stock even though the more expensive stock changed by 1% and the less expensive stock changed by 10%.

Because it primarily contains large-cap, blue-chip U.S. companies, the DJIA is less representative of the market as a whole.

Nasdaq Composite Index

Like the NYSE Composite Index, the Nasdaq Composite Index is market-capitalization-weighted, and it is comprised of all the stocks traded on the Nasdaq Stock Exchange including foreign-owned companies. Besides tech stocks, the Nasdaq also includes securities from financial companies, industrials, insurance, and transportation. The Nasdaq includes small-cap, or speculative, companies so movements in the index are indicative of the performance of the tech segment and startups.

Using the NYSE Index as a Benchmark

The values of indexes such as the NYSE Composite Index tell investors “where the market is,” and they are displayed daily. Investors use these indexes as benchmarks against which they compare the performance of their own securities, investment strategies, or the performance of an investment manager. It’s important that investors should choose a benchmark index that has a similar risk/return profile to that of their own securities.

Bottom Line

Indexes such as the NYSE Composite Index are an important component in the analysis of equity markets. Movements in the indexes reflect macroeconomic trends, investors’ risk tolerance levels, and investing tendencies. Understanding what companies comprise the various indexes and what movements in the value of the indexes mean can help investors make important investment decisions.