There are a variety of published averages and indexes to gather data on price movements and trading volumes. A market average, such as the Dow Jones Industrial Average (DJIA), is calculated through a method of simple mathematical averaging. All of the stocks in the average are given an equal weighting. That means that higher priced stock will affect the average in a bigger way. An index, such as the Standard & Poor’s 500 (S&P 500), compares current prices to some baseline, such as prices on a particular date. Below is a list of the most popular stock market averages and indexes.
Dow Jones averages: The most widely quoted and oldest measures of change in stock prices are the Dow Jones averages, each is based on the prices of a limited number of stocks from four categories:
1. Industrial Average (30 stocks)
2. Transportation Average (20 stocks)
3. Utilities Average (15 stocks)
4. Composite Average (the 65 stocks from the three other averages)
By far the most widely used of the various market indicators is the DJIA. The Dow Jones averages are not weighted by the relative size of an issue of a corporation.
Standard & Poor’s 500 Index: The S&P 500 is based on the prices of 400 industrials, 20 transportation stocks, 40 financial stocks and 40 public utilities. Each of these four categories is also reported separately. S&P indexes are statistically more refined than Dow Jones averages. S&P indexes offer two advantages over Dow Jones averages: their explicit weighting system and their broad coverage.
Each stock is weighted according to the aggregate value of shares outstanding. The coverage is also broad: the 500 stocks represent about 75 to 80 percent of the aggregate value of all New York Stock Exchange (NYSE) listed issues. The S&P 100 Index is a value-weighted index of 100 blue chip stocks, such as IBM, Boeing and JP Morgan Chase & Company.
NYSE Composite Index: The NYSE composite is based on the prices of all common stocks listed on the New York Stock Exchange. Like the S&P 500, it is weighted by the total value of shares outstanding for each stock. As they are with the Dow Jones composite and the S&P 500, industrial issues are the largest component of the NYSE Composite. The index is computed and reported throughout the trading day. The index covers over 2000 stocks. According to the NYSE, “The New York Stock Exchange established the NYSE Composite Index (NYSE: NYA) in 1966 to provide a comprehensive measure of the performance of all of the common stocks listed on the NYSE. The NYSE Composite closely reflects the broader market, as it represents 77 percent of the total market capitalization of all publicly traded companies in the United States.”
NASDAQ price indexes: The computerized automated quotations system making up NASDAQ, publishes several indexes of stocks traded on it. NASDAQ provides group indexes for industrial, banking, insurance, finance, technology, transportation and utilities stocks.
Value Line Composite Index: This index consists of 1,626 NYSE, NYSE AMEX and NASDAQ common stocks. In addition, Value Line offers an investment advisory service that ranks hundreds of stocks for timeliness and safety. It projects which stocks will have the best or worst relative price performance over the next twelve months.
Wilshire 5,000 Equity Index: The Wilshire 5,000 is the broadest measure of the market. It is a value-weighted index composed of 5,000 NYSE, NYSE AMEX, NASDAQ and over-the-counter (OTC) common stocks. Daily reports of the Wilshire 5,000 index can be found in The Wall Street Journal.
Quote of the Week: “A stock is only worth what the Specialist is willing to pay for it.”—Richard Ney
Bart Ward is the chief executive officer of Ward & Co. Ltd. an Anoka based registered investment advisor – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.