- Investors should understand the various stock market indices.stock exchange image by Christopher Walker from Fotolia.com
Stock market indices represent useful information for investors and various economic participants, including business, banks and economists. Each index, a grouping of specific stocks, provides insight into the profitability of a specific market sector. By tracking the movement of indices over time, one can ascertain market trends. - The Dow Jones Industrial Average includes 30 different stocks, often referred to as "blue chip" stocks. The term signifies the importance of reputation and success and the relationship between historical and current performances. These stocks are the most watched on the market and include companies in the financial, industrial and retail sectors. The Dow Jones Transportation index and the Dow Jones Utility index represent the performance of companies within the transportation and utility sectors, respectively.
- Standard & Poor's provides various investment services, including company credit ratings and stock indices. The S&P 500 Index includes 500 stocks. These stocks represent the large companies across all industries. Among the factors that go into deciding which stocks make up the S&P 500 include company liquidity, performance and size. In addition, the S&P 500 strives to represent all industries. For smaller corporations, the S&P Midcap 400 compiles data on the best performing mid-size companies, and the S&P SmallCap 600 provides analysis of small companies, providing an important indicator in a traditionally unstable financial arena.
- Reported alongside the Dow Jones Industrial Average, the Nasdaq 100 provides important investor information on 100 of the largest companies traded on the stock exchange. Of these companies, all represent non-financial corporations and are the most actively traded on the exchange. In fact, to be considered for incorporation into the Nasdaq 100 the stock must have a minimum daily trading volume of 100,000 shares. The Nasdaq 100 represents a combination of domestic and international corporations with a minimum of two years on a stock exchange.
- A host of other indices can provide investors with information related to industry and company performance. This includes the Russell 2000, which measures the performance of some of the smallest companies traded on the stock exchange. In contrast, the 3,000 largest companies factor into the Russell 3000 index. This index helps investors gain an insight into the performance of the entire market and gets reassessed each year to bring deserving companies into the fold.
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