In short: The Nasdaq is a Tech index of 100 largest Tech companies.
The NASDAQ Composite (ticker symbol ^IXIC) is a stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the Nasdaq stock market. Along with the Dow Jones Industrial Average and S&P 500 it is one of the three most-followed indices in US stock markets. The composition of the NASDAQ Composite is heavily weighted towards information technology companies. The NASDAQ-100, whose components are a subset of the NASDAQ Composite’s, accounts for over 90% of the NASDAQ Composite’s movement, and there are many ETFs tracking its performance. The composite itself is calculated by taking the sum of the products of closing price and index share(capitalization-weighted) of all of the over 2500 securities in the index. The sum is then divided by a divisor which just serves to reduce the order of magnitude of the result.
The index was launched in 1971, with a starting value of 100. Over the years, the index has soared tremendously despite multiple periods of decline.
Dot-com boom and bust
On July 17, 1995, the index closed above the 1,000 mark for the first time. It made steady gains in the following years to reach 2,000 points by 1998, then began to accelerate significantly. This process mushroomed in late 1999. The index closed that year at 4,069.31 points. On March 10, 2000, the index finally peaked at an intra-day high of 5,132.52, and closed at an all-time high of 5,048.62.The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot-com bubble.
On March 10, 2000, the NASDAQ Composite peaked at 5,132.52, but fell to 3,227 by April 17, and in the following 30 months fell 78% from its peak.
The decline from this peak signalled the beginning of the dot-com bubble burst. There were multiple things contributing to this Dot-com boom and bust. Some optimists thought the internet and World Wide Web would be more significant to business than any kind of Industrial Revolution in the past, possibly enabling us to achieve a Technological Singularity. More pessimistic types were concerned that business would require massive technology replacement to achieve Y2K compatibility.
The index declined to half its value within a year, and finally hit the bottom of the bear market trend on October 10, 2002, with an intra-day low of 1,108.49. While the index gradually recovered since then, it did not trade for more than half of its peak value until May 2007. The 2000s (decade) brought a mix of pessimistic news stemming from the Early 2000s recession, the September 11 attacks and the impending Afghan War along with the 2003 invasion of Iraq.
The index opened the fourth quarter of 2007 with new 80-month highs, closing above the 2,800 point mark on October 9, 2007, and reaching an intra-day level of 2,861.51 on October 31, 2007, the highest point reached on the index since January 24, 2001.
High energy prices and the possibility of recession dropped the NASDAQ into a bear market in early 2008, which was recognized on February 6 when the NASDAQ closed below the 2,300 level, about 20% below the recent highs. Furthermore, the failure of Lehman Brothers in September brought world financial markets into turmoil. The NASDAQ was no exception, experiencing record levels of market volatility. On September 29, 2008, the NASDAQ dropped nearly 200 points, the most since the tech bubble burst, losing 9.14% (third largest in history) to fall beneath the 2,000 level. Conversely, on October 13, 2008, the NASDAQ recorded a gain of nearly 200 points (more than 11%). On March 9, 2009, the composite hit a six-year intra-day low of 1,265.52 before recovering under the influence of Federal Reserve quantitative easing (QE).