Every day whether it’s the morning or at night there is usually a part of the News that tells you how the Market did that day or the previous day. The Market is either up or down depending on what is going on in the world. In the US we have 3 major Stock Market Indexes and Averages that are mostly talked about.
1. The Dow Jones Industrial Average
The Dow Jones Industrial Average is a list of 30 of the biggest companies in the US. They are selected by the editors of the Wall Street Journal. They include names like McDonalds, Microsoft, Exxon and Walt Disney Co. to name a few. The 30 companies are called components. If the Dow is up or down it is calculated using a basic formula. Add all the stock prices of each of the 30 components in the Dow and then divide by 30. However, this is not always the case since the divisor change, depending on other factors, but for the most part this is the general principal of how it is figured. Please visit The Dow Jones Index website for more information.
2. The NASDAQ Composite
National Association of Securities Dealers Automated Quotation System (NASDAQ). The Nasdaq is a computerized system that is known mostly for technology companies that are traded within the system, but these are not the only ones traded in the composite. There are a lot of smaller companies in Nasdaq Stock Market. There are currently 3,000 companies traded and listed within the Nasdaq and more and more people are using the Nasdaq as a better guage of market conditions.
3. The S&P 500
The S&P 500 is composed of 500 of the largest companies in the US. The Standard and Poors corporation created the Index and is widely considered a better indicator of the general health of the Stock Market. All types of companies are listed in the index from technology companies to health care to oil and gas. Each of these are known as sectors of the market. It is also a better guage of the overall market conditions and health of the stock market. However, that is why people look at all 3.
4. The Russell 2000
The Russell 2000 consists of 2000 of the smallest companies in the US. These companies a are much smaller than what you’ll see in the Dow or S&P 500. However, some of those big names were once a member of the Russell 2000. These companies are considered Small Cap Companies and one should always be on the lookout for the next Microsoft or Home Depot. You’ll find them here first before they make it big.
There are literally hundreds of indexes that folks at major companies have created to monitor a slice of the overall market. The ones mentioned above are the more familiar ones. However, there exist others for Transporatation, Entertainment, Pharmaceutical and Commodities Indexes. As you read and hear about them, you will start to learn how these indexes work and how they can be researched to better understand the marekt so you can invest more wisely.