What do these financial markets mean?
When you listen to the news, you’ll hear “the Dow was up by 200 points” or “the S&P dropped because of blah blah political news” – the terms “Dow” and “S&P” represent how the general financial markets are doing. They represent baskets of companies and both are weighted differently. Here are a little more details on what they actually mean and represent.
Dow Jones Industrial Average: commonly referred to as “the Dow” – is a basket of 30 stocks from different industries that represent the general economy. The index is price-weighted, which means that higher-priced stocks have more weight. Stocks can be added or removed from the index but it’s not done that frequently. Here are a few of the companies that are currently part of the Dow: Apple, Exxon Mobil, Intel, GE, Nike, & Goldman Sachs.
Standard & Poors 500: commonly known as “the S&P” – an index that is composed of 500 large-cap companies. The index is market cap weighted. Market capitalization is a company’s stock price times the number of shares issued. So companies with a higher market cap have more weight in the index. There are requirements as to whether a company can be represented in the S&P and the sectors represented are meant to present the economy. Here are some companies that are part of the S&P 500: Apple, Microsoft, Amazon, Berkshire Hathaway, JPMorgan, Facebook, and Johnson & Johnson.
The actual stock trading occurs primarily on are the New York Stock Exchange and the NASDAQ.
NASDAQ: stands for “National Association of Security Dealers” and is both a benchmark for US technology companies and a trading marketplace in which over 3,000 technology companies trade. Companies that are part of the NASDAQ: Microsoft, Apple, Google, Cisco, Intel, Oracle, and Vodafone.
The Dow, S&P, and NASDAQ are three important benchmarks to gauge how the US economy is doing. It’s important to also look at foreign indexes too to see how the global economy is doing.
MSCI EAFE – represents 21 developed markets across Europe, Australia, & the Far East (excludes US & Canada).
MSCI Emerging Marketing – represents 23 emerging economies.
FTSE 100 – Financial Times Stock Exchange; similar to the S&P in the US but for the London Stock Exchange.
Nikkei – Japan’s 225 stock average; equivalent to Dow for the US.
Before you start to invest, it’s important to track the news daily to see what parts of the news affect the markets.