The Beginners Guide To Understanding Stock Market Indexes

By Jolie Hamilton 

A stock market index is a statistical that measures changes in the securities markets. An index is simply an overview of the securities traded on the market, that as a whole paint a picture of the health of the market. Each index has its own method for calculating market health. It is generally expressed as a positive or negative change from it's base value, positive being green, negative being red.

Popular indexes in the US

The Standard & Poor’s 500 Index – The S & P 500 index

This index is the most widely used in all the world. The S & P 500 consists of 500 stocks that lead their respective industries or niches. It is a leading indicator of US stock market health.

The Dow Jones Industrial Average (DJIA)

Closely following the S & P 500, the Dow Jones, or Dow, is most commonly the overall indication that media outlets use to relay market information to their viewers.

This index consists of 30 huge stocks traded for cash on the New York Stock Exchange (NYSE) and the NASDAQ. It includes companies such as Microsoft, Exxon Mobil, Disney, and General Electrical, just to name a few.

The Dow Jones Utility Average (DJUA)

The DJUA is a sector type index. It analyzes utilities mostly, and it's incredibly sensitive to interest rates, as these utilities are huge borrowers from lending institutions.

The Russell 2000 Index

The small company index. This index includes over 2,000 small companies, and is the index of choice to speculate on the health of small business in the states.

Wilshire 5000 Total Market Index (TMWX)

Largely a commodity based index, the TMWX is the most common indicator of commodity health. Pork, oil, coal, and many others are the primary focus of this index.

The Nasdaq Composite Index

Mostly focuses on tech companies, and is the most trusted indicator of market health in the tech sector.