The Dow and other stock indexes.You can use these benchmarks to measure the performance of your investments Many folks can't start their morning without turning on the news and hearing two bits of information: what's the weather like and how's the stock market doing today. How well stocks perform on a daffy basis is measured by stock indexes. If you were to take a bundle of different types of stocks and lump them together--tied with a few financial formulas, you would have a stock market average or an index. Why would you want to follow an index? Today, there are more than 20 major indexes that exist as barometers of stock market activity and also benchmarks against which you can evaluate the performance of your stocks. For example, if the Standard & Poor's 500 stock index, consisting of 500 large companies with sizeable U.S. operations, rose 20% one year and your portfolio lost or gained only 10%, you might want to reevaluate the stocks in your portfolio. A well known stock index is the Dow Jones industrial average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. (DJIA DJIA See Dow Jones Industrial Averager (DJIA). ), which comprises 30 companies representing major industries such as oil, retail, manufacturing, food, and technology. The stocks in the Dow--often classified as blue chips--represent 25% of the total market value of all stocks traded on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. . While there are always 30 DJIA stocks, certain issues from time to time fall out of favor. Only one of the original 12 DJIA stocks is in the index today: General Electric. In one of the biggest shake-ups in its 104-year history, the DJIA entered the Digital Age in 1999 when it dropped such time-honored companies as Goodyear Tires and Sears Roebuck in favor of upon the side of; favorable to; for the advantage of. See also: favor tech titans Microsoft and Intel. It was the first time stocks trading on the Nasdaq exchange joined the DJIA. Because the DJIA is so narrowly based, many portfolio managers use the S&P 500 stock index as a better indicator of overall market performance. Market analysts have devised dozens of other stock indexes, including those that focus on just one sector, such as automobiles, utilities, or restaurants. For example, the Dow Jones Transportation Average The Dow Jones Transportation Average (also called the "Dow Jones Transports;" DJTA) is the oldest U.S. stock market index. Components Today, the index consists of the following 20 companies (weighted to adjust for stock splits and other factors): Launched in 1971, the Nasdaq comprises more than 5,000 companies, including many of the New Economy tech firms, and measures domestic and non-U.S.-based common stocks listed on the Nasdaq stock market Nasdaq stock market The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies. . The Nasdaq was the first electronic stock market and its name is an acronym acronym: see abbreviation. A word typically made up of the first letters of two or more words; for example, BASIC stands for "Beginners All purpose Symbolic Instruction Code. for the National Association of Securities Dealers National Association of Securities Dealers (NASD) Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to comply with the Maloney Act, which provides for the regulation of the OTC market. Automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. Quotations system. Created in 1974, the Wilshire 5000 Total Market Index Wilshire 5000 Total Market Index A very comprehensive market-capitalization-weighted index composed of over 6,500 stocks. Stocks traded on the New York Stock Exchange represent approximately 77% of the value of the index. consists of more than 7,000 companies and tracks the returns of practically all publicly traded domestic stocks. The Russell 2000 Index Russell 2000 Index An index measuring the performance of the 2,000 smallest companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States. tracks the stock performance of smaller companies on the major stock exchanges. They are actually the 2000 smallest companies in the Russell 3000 index The Russell 3000 Index is a stock market index of US stocks. The ticker is "RUA" or similar. See Russell Indexes page for main discussion. See also the iShares Russell 3000. . If you have any foreign investments, consider using the Morgan Stanley Capital International Morgan Stanley Capital International (MSCI) This firm publishes a number of well known benchmarks, such as the MSCI World Index. Europe Australia Far East Index (EAFE EAFE Europe, Australia, and the Far East (markets) EAFE European Association of Fisheries Economists EAFE European Association of Forensic Entomologists EAFE Edge-Average Finite Element EAFE Extended Arm Fume Extractor ). Stock indexes are published in the financial or business section of daily newspapers. Knowing how much the Dow (Direct OverWrite) See magneto-optic disk. or any other index goes up or down on any given day is less important than knowing the overall trend--is the market as a whole climbing rapidly or slowly, staying flat, or dropping dramatically? A COMPARISON OF U.S. EQUITY INDEXES(*)
INDEX Russell 1000 Russell 2000
REPRESENTATION Large Cap Small Cap
CHARACTERISTICS 1,000 2,000
Approximate
number of
companies
in index
DISTRIBUTION BY
MARKET CAP
NYSE 71.5% 45.3%
AMEX 0.2 1.7
NASDAQ/OTC 28.3 53.0
METHODOLOGY
Criteria for
inclusion Top 1,000 Bottom 2,000
securities in the securities in the
Russell 3000 Russell 3000
WEIGHTING Market Cap, Market Cap,
adjusted for large adjusted for large
private holdings, private holdings,
corporate cross corporate cross
ownership ownership
RECONSTITUTED Annually Annually
OBJECTIVE Yes Yes
METHODOLOGY
PUBLICLY
AVAILABLE
STYLE INDEXES Yes Yes
AVAILABLE
Dow Jones
INDEX Russell 3000 Industrial Average
REPRESENTATION Broad Market Large Cap
CHARACTERISTICS 3,000 30
Approximate
number of
companies
in index
DISTRIBUTION BY
MARKET CAP
NYSE 69.7% 88.4%
AMEX 0.3 0.0
NASDAQ/OTC 30.0 11.6
METHODOLOGY
Criteria for
inclusion Top 3,000 Representative of
Nasdaq, NYSE & U.S. industry
AMEX U.S. domi-
ciled stocks as
ranked by Market
Cap
WEIGHTING Market Cap, Price
adjusted for large
private holdings,
corporate cross
ownership
RECONSTITUTED Annually No
OBJECTIVE
METHODOLOGY
PUBLICLY Yes No
AVAILABLE
STYLE INDEXES Yes No
AVAILABLE
INDEX Nasdaq S & P 500 Wilshire 5000
REPRESENTATION Nasdaq Exchange Broad Market Broad Market
CHARACTERISTICS 5,000 500 7,000+
Approximate
number of
companies
in index
DISTRIBUTION BY
MARKET CAP
NYSE N/A 87.4% 64.5%
AMEX N/A 0.0 1.1
NASDAQ/OTC 100% 12.6 34.4
METHODOLOGY
Criteria for
inclusion All domestic and S & P All U.S.
non-U.S. based selection equities for
common shares committee, which prices
traded on Nasdaq liquidity were available
factor on that day
WEIGHTING Market Cap Market Cap Market Cap
RECONSTITUTED No No As needed
OBJECTIVE Yes No Yes
METHODOLOGY
PUBLICLY
AVAILABLE
STYLE INDEXES No Yes Yes
AVAILABLE
(*) As of 6/30/00 Source: [C] Frank Russell Frank Russell may refer to the following people:
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