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Understanding Stock Market Indexes

Posted on December 17, 2021 by Chester Etheridge

A stock exchange index is a statistical measure of changes in the securities markets. An index represents a portfolio of securities traded on the marketplace that's regarded as reasonably representative of the marketplace as a whole. Each index has its own method of calculation. It's usually expressed as a change in the base value. For a better understanding of the stock exchange, an index ought to be read not in its absolute numerical value but in the percent change in its numerical value. An individual can't invest in an index directly. But you can invest in index related mutual funds.

Popular indicators in the Usa

The Standard & Poor's 500 Index - The S & P 500 index

This indicator is the most popular index on the planet. The S & P 500 index consists of 500 stocks chosen on the basis of industry, market capitalization, liquidity and other factors. It's a leading indicator of US stocks. The index doesn't include speculative stocks.

The Dow Jones Industrial Average (DJIA) - popularly known as the Dow

This index is composed of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. It includes companies like Microsoft, Exxon Mobil, Disney, and General Electrical. The index doesn't include speculative stocks.

The Dow Jones Utility Average (DJUA)

The DJUA is more of a business based indicator since it's a price-weighted average of 15 utility stocks traded in america. It's sensitive to interest rate changes as utility businesses tend to borrow a lot of money.

The Russell 2000 Index

This index contains 2,000 small company stocks that are included in the Russell 3000 index. It functions as a bench mark for small business stocks in america.

Wilshire 5000 Total Market Index (TMWX)

This indicator measures the stock performance of all US headquartered equities for which cost data is easily available. It's one of the broadest stock market indices. It includes equities of over 7,000 companies traded on US Stock Exchanges.

The Nasdaq Composite Index

It monitors companies traded on the Nasdaq Stock Exchanges. The index includes stocks of over 5,000 companies traded on Nasdaq. The majority of these companies are technology firms. However, you'll discover businesses in the financial, industrial, transport and insurance businesses. Additionally, it consists of many speculative businesses.