Stock Market Index Cheat Sheet
May 26, 2009
The stock market indexes are names you’ve probably heard before if you follow any financial news. Every day commentators report on the Dow being up, the S&P 500 being flat, or the Nasdaq being down; here’s a short cheat sheet on what the major indexes represent.
Domestic Market Indexes
Dow Jones Industrial Average: Also known as the DOW, the DJIA or the Dow 30, this is probably the most well known index in the world, and yet, probably the least important. Created in 1896 by Charles Dow, this index consists of 30 of the largest and most widely held individual American stocks. The financial world lives and breathes the movements of this group of stocks. In 1896, this made sense, but at this point, 30 stocks, even these 30 stocks, are just too small a sample to judge the health of the market.
S&P 500: This index consists of 500 of the largest publicly traded companies in the US. First created in 1957, this index is considered a good indicator in regards to the state of the US economy. When you hear the term index investing, the S&P is generally what people think of. Vanguard has made a living out it and chances are, if you have a 401K, you are taking advantage of it as well.
Russell 2000: This index consists of 2000 of the smallest traded American companies and is considered a barometer for this segment of the market. Started in 1984, this index has outperformed its large-cap friends since inception and is actively used by investors.
Nasdaq: The National Association of Securities Dealers Automated Quotations (Nasdaq) consists of approximately 3,800 stocks. It is the most active exchange in the world. Created in 1971, the Nasdaq was the world’s first electronic stock market. This group of stocks is loaded with most of technology’s big names, as well as many small companies that you have never heard of.
Global Market Indexes
MSCI EAFE: This is the first index we will cover that does not include US stocks. The MSCI EAFE stands for Morgan Stanley Capital International Europe, Australasia (Australia and New Zealand) and Far East. Created in 1969, this index covers 21 developed markets and is the most common foreign benchmark.
European Market Indexes
FTSE 100: The “Footsie” consists of the 100 largest companies traded on the London Stock Exchange (LSE). The index was created in 1984 and the 100 stocks represent over 80% of the overall market capitalization of the LSE.
CAC 40: This is the main French index consisting of 40 of the largest stocks in the country. Originally created in 1987, this index now trades on Euronext.
DAX: The German version with 30 blue chip stocks. Also created in 1987, this index trades on the Frankfurt Stock Exchange.
Asian Market Indexes
Nikkei 225: The Nikkei is traded on the Tokyo Stock Exchange. This index started in 1950 and is the major benchmark in Japan.
Hang Seng Index: The HSI is 45 Chinese stocks traded in Hong Kong. This index was created in 1969.
These are just a handful of the major indexes of the world, but many of the most widely discussed. It’s not an all encompassing list, for information on more of the world’s market indexes you can visit the stock market index page on Wikipedia.
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