What is the Market? While watching the nightly news have you ever pondered, what’s the difference between Dow, Nasdaq, and S&P?
After the headlines of the night are reported, then the weather, and briefly you will hear the Dow is up…..Nasdaq is down….But what is the Dow and Nasdaq? Don’t worry I shared similar thoughts about a topic that’s frequently mentioned, but glossed over within seconds.
Not giving us much time to recognize and digest what we heard. This article will help dispel the seemingly malarkey heard during the nightly news mention of the market performance.
What is the Market?
This term is loosely thrown around in conversations surrounding investing. However, depending on the conversation the market refers to the S&P 500, and DJIA (Dow Jones Industrial Average).
What is the market? The market can be either of the aforementioned and tracked by its respective index. What is an index?
In brief an index is an average of the sectors, companies, and or commodities that are captured in the single price of the index. For example, the S&P 500 is the top 500 American companies measured by market cap.
It is not possible to invest in the ‘Market’; however, investing in the Market can be done through an index fund.
What is the S&P 500?
The S&P 500 stands for Standard & Poor 500. As mentioned above the S&P 500 is the top 500 American companies measured by market cap.
The majority of investor’s measure their performance to the performance of the S&P to gauge how well their portfolio is performing compared to the S&P 500 index.
Each stock has a particular weight in the S&P depending on the market value. Some of the top holdings in the S&P are GE, Amazon, Facebook, and Berkshire Hathaway.
What is Dow Jones Industrial Average
The Dow Jones Industrial Average (DJIA ), is the average of 30 stocks traded on the New York Stock Exchange and Nasdaq. DJIA is tracked by the Dow Jones Industrial Average index. In general the companies listed on the Dow are house hold names such as GE, IBM, and Johnson and Johnson.
If the 30 companies in the Dow index are performing well then the Dow index will be up. Therefore, if you hear on your nightly news the Dow is down a quarter of a percent. That means the index price has dropped .25 percent at the close of the market that day.
What is the Nasdaq?
The Nasdaq ( National Association of Securities Dealers Automated Quotations System ) is a stock (Securities ) exchange where investors can buy and sell securities electronically.
Therefore, as a whole the securities listed on this exchange determines the performance of the subsequent index fund. The Nasdaq is commonly composed of technology companies; such as, Google (Alphabet ), Ebay, Apple, Microsoft, and many more companies.
The NASDAQ was started in 1971, and currently there are more than 3,000 stocks listed on the Nasdaq exchange. When you hear someone say the Nasdaq has been moving up the last couple of weeks. I want to buy into the Nasdaq they are referring to the Nasdaq Composite Index.
Comparatively, the market can be tracked by various indices. However, in the United States the 3 most popular are S&P 500, DJIA, and Nasdaq. Performing a temperature check on the securities market should start with the current state of the 3 indices mention. The performance of those indices is the Market.
Which index do you prefer to track?