Saturday, November 14, 2020

What is "The Market"?


What is “The Market”?

Volatility has played a big part in 2020 and there’s no sense it will stop anytime soon. More people are paying attention to the ebbs and flows of the stock market – whether they want to or not – thanks in large part to the news cycle. “Dow Soars 800 points…”, “Nasdaq jumps 2%…”, “S&P Futures eases below 3,600…”

There are countless attention-grabbing headlines all seemingly referring to the same stock market, but promoting different letters and indices with varying percentages and numbers. What is the difference between the Dow Jones, the Nasdaq, and the S&P 500? And what does “The Market” actually mean?

The Dow Jones Industrial Average

One of the most widely known, and America’s original stock index, the Dow Jones is made up of 30 of the largest stocks from each major sector, excluding utilities and transportation. The value of the index is price-weighted, which means the index is only affected by changes in stock prices. A 1% price change for UnitedHealth Group ($351.70/share) has a much larger impact on the index than a 1% change in Cisco Systems (39.33/share).

Is the Dow a good measure of the stock market?