Indexes on Stock Market Update

On Briefing.com's Stock Market update page, we provide an update and explanation of market conditions continually during the day, with frequent references to the market indexes. The following is a brief definition of each index, and its relevance.

The most familiar of all indexes, often just called "The Dow" and the overall proxy for the market. The Dow comprises the weighted stock price of the 30 Industrial companies picked by the Dow Jones company. All 30 stocks are blue-chip large capitalization stocks. The DJIA started on May 26, 1896 at 40.94.

The DJTA consists of 20 transportation stocks, including major airlines, shipping companies and some railroads, and is often used as confirmation of trends in the DJIA. According to the DOW theory, created by DJ founder Charles Dow, the DJTA was originally used as the leading indicator for the DJIA. The essential thought of the DOW theory is that if industries are booming they will need to transport goods. Any weakness in the transport average is seen as an indicator of weakness in the Industrial Average. With the service economy having grown significantly since the turn of the century, and the growth of the Nasdaq stocks, this relationship is less clear. However, many technical analysts watch the Transport Average closer for indicators.

There are 15 stocks in the DJUA, including most of the largest power and utility companies across the company. The DJUA serves as an indicator for the stock market's anticipation of interest rate changes. Utilities that pay fairly predictable dividends are viewed as income investments by many, and as such, react negatively to anticipated hikes in short-term rates. Also used for confirmation of trends in the DJIA.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock's weight in the Index proportionate to its market value. The S&P500 represents about 70% of the total U.S. market capitalization.

The Nasdaq composite index consists of all of the roughly 5,000 stocks on the Nasdaq exchange. Stock prices are weighted by market capitalization, as in the S&P 500. The Nasdaq 100 is a similar index, but using only a subjective listing of 100 of the largest non-financial companies on the Nasdaq.

The three principal Russell Indexes are the Russell 3000, Russell 2000, and Russell 1000 Indexes. All three are created and maintained by Frank Russell, Inc. The Russell 3000 Index covers the top 3,000 companies by market capitalization and represents 98% of the total market capitalization in the U.S. The Russell 1000 measures the top 1,000 companies in all markets, and as such, is similar to the S&P 500, only broader. The Russell 2000 is a way to measure the small-cap sector of the market. The Russell 2000 measures stocks 1,001-3,000 in market capitalization and represents the bottom 10% (by market capitalization) of the entire equity market.

A price-weighted composite index of 16 semiconductor chip manufacturers. This is a concentrated look at the technology sector, excluding software companies. Intel (INTC), Motorola (MOT), Linear Technology Group (LLTC), Lattice Semiconductor (LSCC), and Texas Instruments (TXN) are the top five companies, and contribute almost 30% of the value of the index. Calculated by, and options traded on, the Philadelphia Exchange.

An inflation indicator published by the Commodity Research Board, the CRB is a compilation of commodity prices put together from prices on the Commodity Exchange Center. Generally differs from the inflation reported by the Consumer Price Index and Producer Price Indexes put out by the government because the CRB inflation index focuses only on commodities and does not include items such as housing costs. As the only indicator available on a daily basis, it's of more interest to traders than the CPI or PPI.

Precious Metals sector index consisting of 11 gold and mining stocks. Calculated by and options trade on the Philadelphia Exchange. Barrick Gold (ABX), Newmont Mining (NEM), and Placer Dome (PDG) dominate the index at nearly 75% of the total index.

Robert V. Green