Understanding Stock Market Indexes
A stock market index is a statistical measure of changes in the securities markets. An index represents a portfolio of securities traded on the market that is considered to be reasonably representative of the market as a whole. Each index has its own method of calculation. It is generally expressed as a change from its base value. For a better understanding of the stock market, an index should be read not at its absolute numerical value but at the percentage change in its numerical value. One cannot invest in an index directly. However, you can invest in index related mutual funds.
Popular indexes in the US
The Standard & Poor's 500 Index - The S & P 500 index
The Dow Jones Industrial Average (DJIA) - popularly known as the Dow
The Dow Jones Utility Average (DJUA)
The DJUA is more of a sector based index as it is a price-weighted average of 15 utility stocks traded in the US. It is sensitive to interest rate changes as utility companies tend to borrow a great deal of money.
The Russell 2000 Index
Wilshire 5000 Total Market Index (TMWX)
The Nasdaq Composite Index
It tracks companies traded on the Nasdaq Stock Exchanges. The index consists of stocks of more than 5,000 companies traded on Nasdaq. Most of these companies are technology companies. However, you will find companies in the financial, industrial, transportation and insurance sectors. It also consists of many speculative companies.
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