You open the financial papers, watch CNBC or cross Wall Street, and you are bound to hear these words being spoken all over, like some secret financial language being echoed in code. Don’t worry, as long as it isn’t rocket science, we got you covered. Making it as easy as possible, with a little bit of history and interesting facts thrown in, we will help you in Understanding Stock Market Indexes.
Ever wondered how the US Stock Market’s most famous index was named so? It was created by Wall Street Journal editor and Dow Jones & Company co-founder, Charles Dow and Edward Jones, his partner. At the time of inception, there were a limited number of companies that were listed, so an average was taken to determine which ones were on top and which ones weren’t doing so well in as early as 1896! It was first known as Dow Jones Industrial Average (DJIA), but these days is known simply as Dow Jones. It includes the listing prices of the top 30 stocks in the market – including the largest and most influential companies dominating the financial markets. This index weighs only a quarter of the totality of all companies listed on the NASDAQ. A shift in the prices of the stocks for these listed companies should not be taken into consideration for complete market performance, even though it still plays an important role. The most easily recognizable companies listed on the Dow are: American Express, Apple, Boeing, Chevron, Cisco, Coca-Cola, Disney, Goldman Sachs, McDonald’s and Wal-Mart, among others. For a complete list CLICK HERE.
An obvious abbreviation, the S&P 500 Index stands for Standard And Poor 500 companies – those that do not fall under the prestigious Dow Jones Index, but form a major block of stock market trading. Because of its sheer enormity, this Index basically represents how the entire US Stock Markets are doing. Companies falling under the S&P 500 are from every spectrum you can imagine – from oil to health care and everything in between. This index is co-owned by Dow Jones & Company as well as McGraw Hill Financial. This index came later, after the initial start-up of the Dow, due to the increase in the number of listed companies somewhere in the first half of the 1900s, before the infamous Great Depression. Without getting into financial jargon, all you need to keep in mind is that those companies that are not listed under Dow Jones but are trading in equity will in all probability fall under S&P 500 Index and they together determine the overall performance of the market. To check out the complete A-Z list of all companies listed here, including their current trading price, CLICK HERE.
NASDAQ Composite Index
With the Dow Jones representing the financial giants of the market and the S&P 500 holding a chunk of the overall market, what other possible Index could be left? With the onslaught of dot-com companies and the IT sector taking over Silicon Valley at warp speed, a separate trading index had to be created to fit them all – enter the NASDAQ Composite Index. This entire block of companies are listed separately due to their volatility and specialized market demand. The good news is that they seem to be doing very well with the heavy competition and game-changing innovations; the bad news is that stock prediction for this sector can only be left to the experts who can predict with near certainty and precision to whether stocks are moving in the red or green. A relatively new Index as compared to the others, it is picking up pace and keeping pace with the best competitors in the market.
For a complete list of all the Indexes in the stock market, CLICK HERE.