Indices are an essential part of the stock market. There are a lot of terms that are used here, such as the Dow Jones Industrial Average and others. We often meet these while reading news or watching TV, but not everyone understands what this means. We shall have a look at the US stock market indices and explain what are they used for.
Stock market indices are used to measure the market’s performance. Another reason they are used is for gaining investment exposure towards the market.
Indices are the plural form of an index. Do not mistake this as something different. Stock indices are not used for direct trading, and they are only used as information regarding the way stocks perform on the market.
It is, however, possible to use future and option contracts to trade the movements of these indices.
A collection of a significant number of equities, securities, or any other indexes is called a composite index. These have their average values calculated to represent a particular market or market section performance. With their help, traders can check large amounts of data and use it for statistics and economic trends measurement.
The Dow Jones Industrial Average includes 30 large companies from the United States of America. A lot of traders do not consider the Dow to be a good representation of the US stock market, but it is often used as well. It includes such companies as:
As we can see, companies from different industries are included. This means that the Dow indices represent a lot of various fields in one number. At the moment while this article is being written, the Dow Jones Industrial Average has got a value of 26,346.01, with an increase in 181.97 (+0.70%). This shows that all the companies stocks listed here are doing well on the United States stock market.
The S&P 500 is considered to be the main index of the US stock market. Most traders follow it as it represents the average performance of 503 American companies. These indices are quite successful as the S&P 500 has had an average annual total return of 9.8% since its existence. Here is a list of some companies that are included in the S&P 500 index:
The world’s most famous companies can be found here. The S&P 500 is the most accurate index that represents the overall US stock market performance. If you are interested only in 30 companies listed in the Dow Jones Industrial Average, then it is better to use that index.
The Nasdaq Composite Index represents common stocks and securities from the Nasdaq market. It is one of the most tracked indices in the US market. Here mostly information technology companies are included.
The Nasdaq-100 has 103 equities securities included. The stocks’ weights here are based on their market capitalizations, and financial companies are not included here. It is also essential to notice that not only American companies are on the list.
Here are some examples of what can be found in the NASDAQ-100:
As we can see, a lot of decent companies’ stocks can be found here as well.
The Wilshire 5000 is also called “the total market index” by a lot of traders. In 2018 this index included 3846 components. The Wilshire 5000 represents the entire United States of America stock market movement and current state. It is, however, less popular than the S&P 500 for various reasons.
The US stock market indices are an essential indicator for traders from around the whole world. They represent the state of that country’s market by calculating the average movement of all companies included in one number.
We have talked about:
In this brief article, beginners will get a lot of valuable information to understand the way they should calculate everything while working with the US stock market.
We have had a look at:
These are the most popular indices. There are many others, but they are less popular and do not represent all the information we need.