Skip to main content

Understanding major market indexes


Market indexes prove summary of overall market by tracking some of the top stocks on the stock market in the United States and they show in which direction the market is going. Indexes don't represent every company but selected portion of the market. Some indexes track small and mid cap companies, some large companies or companies within certain sector. Three major market indexes are Dow Jones Industrial Average, S&P 500 and Nasdaq. They differ in number of companies they track and calculations they use.

Dow Jones Industrial Average
It is the oldest market index of the three and some the most popular in the media.Journalist Charles Dow, founder of Wall Street Journal created the index that tracked the movement of the whole market, together with statistician Edward Jones on May 26, 1986. The original Dow Jones index had two industrial companies and ten railroads. He realized that two industrial companies are becoming more important and created a new Dow Jones index that consisted of almost all commodity based companies. In 1916 Dow Jones included 20 companies in the calculation and in 1928 that number was 30 as it is today. It takes stock price of 30 companies which best represents their industries. those companies comprise one quarter of all market value. Stock price of all companies are added up and divided by number of companies. Dow Jones Industrial average doesn't take into account the number of shares outstanding something that stemmed criticism. Nevertheless DJIA is considered measure of stock market health and investor's confidence in the market.

S&P 500
The index was introduced on March 4, 1957 and it tracks 500 large cap United States companies. It tracks the market capitalization of companies in the index, taking into consideration the all shares company has issued, but only that are available to the public. The bigger the market cap of a company the more representation they get in the index. Because it takes wider scope of companies, S&P 500 captures around 80% of stock market capitalization. Companies that are part of the index are rebalanced quarterly. Companies have to meet certain requirements, they have to be United States companies with market cap of at least 6.1 billion, with 50% of stock available to the public with minimum price of $1 per share. Company must file 10-K report, have half of the fixed assets and revenues in the United States and it must have four successive quarters of positive earnings.

Nasdaq
Nasdaq is not only the largest electronic equities exchange in the United States it is also the only exchange that tracks performance of all companies that are listed, more than 3000. Majority of companies on Nasdaq are tech companies so it is accepted as tech sector indicator. Nasdaq Composite index uses market capitalization like S&P 500 but Nasdaq doesn't restrict itself in calculation of only publicly available shares like S&P 500. Since it includes small and mid cap companies the Nasdaq composite is the most volatile one of all three.
Labels:
Location: West Palm Beach, FL, USA

Comments

Post a Comment

Popular posts from this blog

OTC stocks more difficult to trade and deposit

  Mina Mar Group helps micro-cap companies structure their growth. Micro-capitalized companies are those with less than $50,000,000 in equity, sometimes under $1,000,000. Restructuring involves raising money (both debt and stock), and planning how they will eventually harvest that wealth. If you’re a founder or investor, the secret to harvesting your equity is to possess assets with a developed market for their sale; up until recently, that market was the public market. Now, Over-The-Counter Securities (“OTC Securities”) don’t serve that purpose since, unless you’re a tech unicorn doing an IPO, there are essentially no ways to sell the shares you’ve invested in. OTC securities – how they were deposited five years ago. Brokerages all around the country have tightened compliance over the past five years to the point where no one may deposit share certificates into their brokerage accounts, even if they can prove that they paid for them. Consider the following demand from a secondary ...
Post a Comment
Read more

Understanding financial statement

The financial statement is a written record of financial activities that gives an overview of financials results and conditions. Financial statement has three basic components: balance sheet which is an overview of assets, liabilities and equity on a particular date, income statement shows net income of the company during a set period of time and cash flow statement which shows inflow and outflow of cash caused by company's activities during stated period of time. Financial statements are often audited to ensure accuracy for tax, financing and investing purposes. Balance sheet reports your net worth at a particular point in time; you can understand it as snapshot in time, usually at the end of the fiscal year. It summarizes all financial data in three categories, assets, liabilities and equity. Assets are tangible objects of financial value owned by the company. Liability is debt owed to a creditor and Equity is a net difference when total liabilities ...
Post a Comment
Read more

The Bad Actor rule of Regulation D

On July 10, 2013 the Securities and Exchange Commission adopted bad actor disqualification provision for Rule 506 of Regulation D under Securities Act of 1933, to implement Section 926 of Dodd-Frank Wall Street Reform and Consumer Protection Act. The disqualification and related disclosure provision appear as paragraphs (d) and (e) of Rule 506, of Regulation D. The Bad Actor rule prohibits company (the issuer) to use registration exemption if the issuer or any other associated person has been convicted of or subjected to judicial or regulatory sanctions for certain violation of U.S law. Exemption from registration under Regulation D helps thousand of businesses to raise capital worth billions of dollars. T he “Bad Actor” rule is codified as new paragraphs (d) and (e) to Rule 506.  Rule 506(d) provides that the exemptions in Rule 506(b) and Rule 506(c) are not available if the issuer or any associated person is statutorily disqualified. This includes all of the following: ...
Post a Comment
Read more