Stock Market indices are designed to measure price changes of the broader market. There are Stock Market indices for almost every imaginable sector of the economy and each index tracks the performance of a specific "basket" of stocks considered to represent a particular market or sector of the U.S. Stock Market or the economy.
Understanding the major Stock Market indices is extremely important to your individual portfolio. Depending on the market and economic conditions, Stock Market indices are capable of either outperforming or underperforming, compared to the broader market. Below you will find short descriptions of the top seven American Stock Market indices. This information will help you determine your asset allocation based on the performance of individual sectors versus the entire Stock Market.
The Dow Jones Industrial Average - The Dow Jones Industrial Average, abbreviated DJIA, is one of the oldest and most popular Stock Market indices in the world. It tracks 30 of the world's largest and most influential companies, often referred to as blue chip stocks. Of all the Stock Market indices, the DJIA represents about a quarter of the value of the entire U.S. Stock Market.
The S&P 500 – Compared to other Stock Market indices, The Standard & Poor's 500 is a larger and more diverse index that consists of 500 of the most widely-traded stocks in the U.S. and represents about 70% of the total value of U.S. Stock Market. The S&P 500 includes companies from several industries, including energy, industrials, information technology, health care, financials and consumer staples. Stocks in the S&P 500 are chosen for their market size, liquidity, and industry group representation. Out of all the Stock Market indices, the S&P 500 is the strongest indicator of the overall direction of the Stock Market.
NASDAQ Composite Index - The NASDAQ is one of the largest Stock Market indices with more than 5,000 companies, including some that are not based in the U.S. Although this index is known for its extensive coverage of the technology sector, the NASDAQ also includes stocks from the financial, industrial, insurance, and transportation industries.
The Wilshire 5000 - The Wilshire 5000 is sometimes referred to as the “total market index” because it includes more than 7,000 of the 10,000+ securities that are publicly traded in the United States. As one of the broadest Stock Market indices, The Wilshire 5000 is a capitalization-weighted index and is seen as an average of the entire U.S. Stock Market.
The Russell 2000 - The Russell 2000 is a capitalization-weighted index of the 2,000 smallest stocks in the Russell 3000 index. Among all of the Stock Market indices, The Russell 2000 is the best indicator of the daily performance of small cap stocks.
NYSE Composite Index – The NYSE is another capitalization-weighted index covering all common stock traded on the New York Stock Exchange. This index includes more than 2,000 stocks, of which over 1,600 represent United States corporations.
NASDAQ-100 Index - The NASDAQ-100 is a modified capitalization-weighted index consisting of 100 of the largest domestic and international non-financial companies listed on the NASDAQ stock exchange. It does not contain financial companies and includes companies incorporated outside the United States. Both of these factors distinguish this index from the S&P 500 and the Dow Jones Industrial Average Stock Market Indices.
