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The S&P 500 - What's a Stock Market index?
Your 2-Minute dose of Genius!
Sika Republic
September 05, 2023
You’ve probably heard of the S&P 500, but as a new investor, you might not know what it actually means. So, here’s a quick explanation.
The S&P 500, or Standard & Poor's 500, is a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. These companies come from various industries, like tech, healthcare, and finance. It provides a snapshot of the overall health and direction of the U.S. stock market and the economy as a whole.
Up/Down, High/Low
When people talk about the S&P 500 going up or down, they're talking about how well these companies are doing on average. So, if you hear someone say, "The S&P 500 hit a new high," it means those big companies are doing pretty well.
The index is market-capitalization-weighted, which means that larger companies have a greater influence on its value. So, in a nutshell, the S&P 500 stock market index is a simple but powerful tool to understand what's happening in the world of American stocks.
The Market Index Big League
Now, the S&P 500 is one of the most widely followed equity indices in the United States, but there are many other regional and sector-specific indexes which exist worldwide. Some of the big ones are:
Dow Jones Industrial Average (DJIA): Often referred to as "the Dow," this index includes 30 large, blue-chip companies listed on U.S. stock exchanges, and it is one of the oldest and most widely followed indexes.
NASDAQ Composite Index: Represents the performance of all the companies listed on the NASDAQ stock exchange, primarily technology and internet-related companies.
FTSE 100 Index: The Financial Times Stock Exchange 100 Index consists of the 100 largest companies by market capitalization listed on the London Stock Exchange.
DAX: Represents the performance of the 40 largest companies trading on the Frankfurt Stock Exchange.
Nikkei 225 Index: This Japanese stock market index tracks the performance of Japan’ leading 225 companies listed on the Tokyo Stock Exchange.
CAC 40: The CAC 40 is a benchmark stock market index representing the 40 largest companies by market capitalization listed on Euronext Paris.
A few more to note: Hang Seng Index: The Hang Seng Index covers the largest and most actively traded companies listed on the Hong Kong stock market. Shanghai Composite Index: Represents overall market performance of companies listed on the Shanghai Stock Exchange. Sensex: represents 30 of the largest and most actively traded stocks on the Bombay Stock Exchange, and the Nifty 50: 50 large-cap stocks on the National Stock Exchange, India. JSE All Share Index: represents 99% of the full market cap value of all eligible securities listed on the Main Board of the Johannesburg Stock Exchange.
Today’s Takeaway:
There are thousands of indices (or indexes) operated by Stock Exchanges across the globe which can act as a measure of a countries economic health, or the growth in specific sectors. As a new investor, it’s helpful to understand this, so the next time someone says the S&P has hit a new high, you’ll know exactly what they mean!