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A Beginner’s Guide To Stock Market Indices

Rocco A. Carriero by Rocco A. Carriero
March 4, 2016
in Real Estate
Home Real Estate

Every day we hear numbers that evaluate the stock market’s performance, such as the Dow Jones Industrial Average or the NASDAQ Composite index. There are a myriad of market indices, and it may seem like they are all measuring the same thing. However, each index evaluates the market in a different way.

Dow Jones Industrial Average:

While the Dow Jones Industrial Average (DJIA) is often used to represent how the stock market is performing as a whole, the index is made up of only 30 large company stocks. Despite its name, the index is composed of more than just industrial companies. The index includes long established entities like General Electric and 3M, as well as newer firms such as Apple, Nike and VISA. The components of the index change from time-to-time, but it always includes stocks that are among the largest in the market. However, given that the index represents the performance of a very limited number of stocks, it may not signify what is happening in the broader market. The DJIA’s value is calculated by adding up the price of all 30 stocks and then dividing it by a specific measure created by Dow Jones.

Standard & Poor’s 500:

Another reading of large company stock performance comes from the Standard & Poor’s (S&P) 500 index. Many in the financial industry consider this a more accurate measure of broad market performance than the DJIA because it includes a much larger group of stocks. The index is made up of approximately 500 of the largest companies in the U.S. (currently, there are actually 504 stocks in the index1). This is a “capitalization-weighted” index, meaning that price movements among larger stocks will have more impact on the index than price moves among smaller components in the index. However, the S&P 500 does not account for mid-cap or small-cap stocks’ performance.

NASDAQ Composite:

Companies that trade on a global electronic marketplace that was first established by the National Association of Securities Dealers (NASD) are included in this index. More than 3,000 common equities are listed on the NASDAQ exchange, including stocks, American depository receipts (ADRs) and real estate investment trusts (REITs). Some companies may be located outside of the U.S. The index’s composition is largely made up of technology companies, so the performance of that industry can greatly influence the index. Like the S&P 500, the NASDAQ Composite is calculated using a market-cap weighting, with the 100 largest stocks accounting for most of its movement.

Russell 2000:

This index measures the performance of small-cap stocks in the U.S. market across a broad swath of industries. It is made up of the 2,000 smallest stocks in the Russell 3000 Index, which tracks broad U.S. stock market performance. The Russell indexes are maintained by Russell Investments, an investment research and management firm. Stocks in the Russell 2000 index cut across a broad swath of industries.

MSCI EAFE:

Morgan Stanley Capital designed the MSCI EAFE index to help U.S. investors understand how overseas stock markets are performing, particularly in developed countries. The index represents the combined returns of large- and mid-cap stocks in 21 countries across Europe, Australasia and the Far East (EAFE), including Great Britain, Germany, France, Japan and Australia.

VIX:

A recently developed index that has received growing attention is referred to as the VIX. This is actually a ticker symbol representing the Chicago Board of Options Exchange Volatility Index. Some investors watch this index to gain a sense of the expected volatility, or unpredictability, of the stock market. The VIX calculates an expected level of volatility for the market by assessing current market prices for instruments such as puts and calls. The number is quoted as a percentage. If the index is accurate, the higher the percentage, the more likely a significant change in the market will occur. Since this index has been around only 12 years, it has not yet been fully tested as an accurate predictor of market volatility.

Keep in mind that the performance of individual stocks or funds that you own can vary, sometimes significantly, from what is reported about the broader stock market.

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Rocco A. Carriero

Rocco A. Carriero

Rocco is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Southampton, NY. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 20 years. Advisors is licensed/registered to do business with U.S. residents only in the states of NY, NJ, TX, MA, PA, NC, NH, UT, NV, CA, NM, WA, VT, MS, MD, RI, FL, MO, SC, GA, MN, CT, AZ. Ameriprise Financial Services Inc., and its representatives do not provide tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.

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  • The Oscar Molina Gallery’s Molina / Vignoli Exhibition

The Oscar Molina Gallery announces the exhibition Molina / Vignoli  that will be on view from August 11th to August 22nd.. Curated by Esperanza León, the exhibition at this intimate space on Jobs Lane brings together a selection of works by Oscar Molina and Fernando Vignoli for whom the interpretation of human dramas—individual and global—is a consistent theme. Paintings from Molina’s Raindrops series, such as the recent 66 x 120-inch, untitled acrylic on canvas, will be featured with four of Vignoli’s works, including the prominent 73 x 73-inch oil on canvas from 2008 titled Time Does Not Stop. @omolina.arts

Read the full article at Hamptons.com (Link in Bio) #oscarmolina #art #local #hamptons
  • Léon 1909 Debuts on Shelter Island

On Sunday, August 7, owner & restaurateur Valerie Mnuchin welcomed a lively crowd of Shelter Island neighbors, local business owners, tastemakers, friends and family to preview Léon 1909, her transportive, new restaurant opening to the public this week on Thursday, August 11. @leonshelterisland

Read the full article at Hamptons.com (Link in Bio) #leon1909 #shelterisland #hamptons #dining #french
  • Mykola Khodorovsky at Art Market Hamptons

Art Market Hamptons will return to the Hamptons for the twelfth edition in August 2022. The premier art fair will be held August 11-14 in Water Mill. It will feature 85 top galleries, several of which are located on the East End, as well as Nova’s Ark Project & Sculpture Garden. @artmarketproductions @mykola_fine_art

One of the artists in attendance this year is Mykola Khodorovsky of Mykola Fine Art, a multi-talented painter, who has traveled from Florida for the anticipated event in the Hamptons. He spoke more about his artwork, his influences, and what those in attendance can expect from Art Market Hamptons beginning this Thursday!

Read the full article at Hamptons.com (Link in Bio) #hamptons #artmarket #art #local #watermill #artfair
  • Westhampton Beach Performing Arts Center to Host Gala Fundraiser on August 13th

Westhampton Beach Performing Arts Center (WHBPAC), a non-profit organization working to bring innovative and cutting-edge entertainment and arts education to the East End will host its annual gala fundraiser A Summer Affair on August 13th at a private waterfront Remsenburg estate. @whbpac

Read the full article at Hamptons.com (Link in Bio) #hamptons #whbpac #westhamptonbeach #westhamptonbeachperformingartscenter #benefit #remsenburg
  • The East Hampton Historical Society’s “Lecture Luncheon Benefit” Presents World-Renowned Landscape Architect Thomas L. Woltz

For the past six years, the East Hampton Historical Society’s “Lecture Luncheon Benefit” has brought together the best designers and architects from around the country to explore, illuminate, and celebrate our community’s beauty and rich history. At this summer’s Luncheon, the Historical Society is pleased to present world-renowned landscape architect Thomas L. Woltz, who will discuss Dynamic Preservation Through Landscape Design on Thursday, August 11 at 11:00 a.m. at the Maidstone Club, overlooking the Atlantic Ocean. @easthampton_histsoc

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