In stocks, whats a composite index?

It is pretty much a grouping of stocks to track growth or lack there of.

For example The Dow Jones industrial Average tracks 30 stocks and assigns a numerical value for the combined value of the 30. This is used to make spotting trends easier.

The S&P 500 works like the Dow. Just with 500 stocks.

edit :: I should add that this is to make it easier to see the big picture. Let’s say IBM had a really bad day so this won’t drag down the other 29 stocks in the Dow. It will drag it down the index a bit but it won’t seem as bad. It normalizes the bigger picture.

A composite index is an average of all stocks traded on a particular exchange. For example, the NYSE Composite Index is defined thus :

Measures all common stocks listed on the New York Stock Exchange and four subgroup indexes: industrial, transportation, utility and finance. The index tracks the change in the market value of NYSE common stocks, and is adjusted to eliminate the effects of new listings and delistings. The market value of each stock is calculated by multiplying its price per share by the number of shares listed.

The NASDAQ Composite Index is probably the most widely used composite. The DJ Industrials and S&P 500 indices are formulated as representative indices to mark overall market trends.