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16/01/2018 07:36:29 AM

Measuring the Market

A stock index is designed to show the performance of the stock market. Here we describe some leading indexes.

Dow Jones Industrial Average

Begun in 1896, the Dow Jones Industrial Average (DJIA) now includes 30 widely held stocks that represent al- most a fifth of the market value of all U.S. stocks. See http://www.dowjones.com for more information.

S&P 500 Index

Created in 1926, the S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stocks’ market performance. It is value weighted, so the largest companies (in terms of value) have the greatest influ- ence. The S&P 500 Index is used as a comparison benchmark by 97% of all U.S. money managers and pension plan sponsors. See http://www2.standardand poors.com for more information.

Nasdaq Composite Index

The Nasdaq Composite Index measures the performance of all common stocks listed on the Nasdaq stock market. Currently, it includes more than 3,200 companies, many of which are in the technology sector. Microsoft, Cisco Systems, and Intel account for a high percentage of the index’s value-weighted market capitalization. For this rea- son, substantial movements in the same direction by these three companies can move the entire index. See http://www.nasdaq.com for more information.

NYSE Composite Index

The NYSE Composite Index measures the perfor- mance of all common stocks listed on the NYSE. It is a value-weighted index based on just over 2,000 stocks that represent 77% of the total market capi- talization of all publicly traded companies in the United States. See http://www.nyse.com for more information.

Trading the Market

Through the use of exchange traded funds (ETFs), it is now possible to buy and sell the market in much the same way as an individual stock. For example, the Standard & Poor’s depository receipt (SPDR) is a share of a fund that holds the stocks of all the compa- nies in the S&P 500. SPDRs trade during regular market hours, making it possible to buy or sell the S&P 500 any time during the day. There are hundreds of other ETFs, including ones for the Nasdaq, the Dow Jones Industrial Average, gold stocks, utilities, and so on.

Recent Performance

Go to the Web site http://finance.yahoo.com/. Enter the symbol for any of the indexes (^DJI for the Dow Jones, ^SPC for the S&P 500, ^IXIC for the Nasdaq, and ^NYA for the NYSE) and then click GO. This will bring up the current value of the index, shown in a ta- ble. Click Basic Chart in the panel on the left, which will bring up a chart showing the historical performance of the index. Directly above the chart is a series of buttons that allows you to choose the number of years and to plot the relative performance of several indexes on the same chart. You can even download the historical data in spreadsheet form by clicking Historical Prices in the left panel.