Actually, the NASDAQ Composite Index includes well over 3500 companies and the S&P 500 includes 505 stocks of 500 companies. There is some overlap, but it's the minority of S&P 500 companies that are also in the NASDAQ Composite. More importantly, by market capitalization, the S&P covers about 75% of all US stocks, and by the time you throw in the NASDAQ, you're probably over 90%. That's why averaging the two indexes is an appropriate barometer of "the market."