Types of Stock Indexes
Stock indexes were developed to serve investors as indicators of the markets' performance and direction. Specialized indexes measure the performance of certain sectors of the market.Among the most used indices are the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ Composite and the Wilshire 5000.
Other People Are Reading
-
The S&P 500
-
Though the Dow Jones Industrial Average is the best-known index, the S&P 500 is the one institutional investors rely on as the most reliable indicator of how the broader market is doing. It takes in 500 large-capitalization companies from several industries. This group of 500 is so influential that it is assumed to move not only the U.S. market, but the the world market as well. But the turnover in the S&P 500 is considerable: Of the original 500 companies, only 86 are still in the index today.
The Dow Jones Industrials Average
-
The Dow is the best known, most often quoted and most widely disseminated index, though most serious investors don't take it as the most accurate benchmark of market performance. It has been around since the late 1800s, when it was made up of 11 major industrial stocks. That number expanded to 30 in 1928--still not enough, critics believe, to represent overall market conditions or investor sentiment.
-
The S&P 100
-
Another rival to the Dow, this index--also known by its ticker symbol, OEX--covers 100 blue-chip companies with exchange-listed options. The companies are chosen for sector balance and account for about 57 percent of the market capitalization of the S&P 500 and almost 45 percent of the market capitalization of the equity markets.
The Dow Jones Transportation Average
-
This index is even older than the Dow Jones Average. It is made up of the stocks of 11 railroad, airline, shipping and trucking companies. Not surprisingly, its performance is highly reflective of swings in the price of oil. It is also watched closely for its part in the Dow Theory, which holds that a sustainable rise in the Dow Jones Industrial Average will be confirmed by the Dow Jones Transportation Average.
The Dow Jones Utility Average
-
A sector index of 15 gasoline and power company stocks, the number of stocks in the average was originally 18 in 1929. Two more stocks were added to the average a while later, but the number was cut back to 15 in 1938. Analysts pay close attention to the Dow Jones Utilities because it appears to reflect the future direction of interest rates. A rise in utility stock prices is taken to mean that interest rates will fall.
The NASDAQ Composite Index
-
This index takes in every company in the NASDAQ over-the-counter stock exchange--more than 5,000, many of them technology companies. Although it gives more weight to larger companies, this is the index to watch for investors with speculative, aggressive-growth portfolios.
Wilshire 5000
-
This is the broadest index of all. The Wilshire 5000, created in 1974 by Wilshire Associates, includes just about every domestic stock in the United States--closer to 6,000 than 5,000 in number, despite the name. It is sometimes called "the total market index," although the 500 largest companies account for about two-thirds of the index's value.
-
