INSIGHT TO THE INDICES

The markets have been on a steady downward trend throughout in 2022. What does this even mean?

This is a simple list of some of the major indices (large groupings of companies) that are frequently discussed.

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Dow Jones Industrial Average (DJIA)

This index tracks 30 of the largest, most frequently traded companies on the New York Stock Exchange (NYSE) and the Nasdaq Stock Exchange (NASDAQ). It can be called the “Dow Jones” or even just the “Dow.” (This should not be confused with a “DAO” which is a new type of blockchain-related community).

The DJIA is a price-weighted index, meaning its value is derived from finding the sum of each of its constituent securities' prices. It is one of the oldest and most commonly followed indices. If you ever watch the news or tune in to CNBC, you have undoubtedly seen the DJIA daily return in a graphic.

The ten largest holdings in the DJIA as of 9/30:

This is a Year-to-Date chart of the performance of the DJIA as of 9/30:

Standard & Poor’s 500 (S&P 500)

Other than the DJIA, the S&P 500 is the most frequently referenced index.

From an institutional investor’s perspective, it is the most common gauge of stock market sentiment because it tracks 500 of the largest companies in the US. Although not exact, the S&P 500 is essentially a proxy for the US stock market generally.

Because of its usefulness and broad lens, it is also becoming widely recognized by individual investors.

The weighting of the constituent companies is calculated on a market capitalization weighted basis. (Market Capitalization = Total # of Shares x Price per Share) This means that a large company will have a larger share of the index.

The ten largest holdings in the S&P 500 as of 9/30:

This is a Year-to-Date chart of the performance of the S&P 500 as of 9/30:

NASDAQ 100

The NASDAQ is one of the largest stock exchanges in the US. The NASDAQ 100 is a subsection of the larger exchange, containing approximately 100 of the largest, most traded companies in the US.

This is also a market capitalization weighted index, so the larger the company the larger its share of the index.

This basket of companies intentionally excludes companies in the financial sector (here is a list of all the sectors), so there won’t be any large banks, insurance companies, mortgage-related real estate companies, and consumer finance providers. Currently (although not intentionally), there are no companies in the utilities or basic material sectors included in the index.

The NASDAQ 100 self-proclaims to be “the large-cap growth index” in the US. This is probably accurate to a degree, although the S&P 500 may have credence in the debate.

The ten largest holdings in the NASDAQ 100 as of 9/30:

It is commonly accepted that the NASDAQ 100 is a proxy for growth-oriented, innovative technology companies. By just comparing the cumulative total of the top 10 holdings (each list containing nearly the same list of companies), it is easy to see the NASDAQ 100’s dependence on the high flying technology stocks relative to the S&P 500.

This is a Year-to-Date chart of the performance of the NASDAQ 100 as of 9/30:

Russell 2000

The Russell 2000 is simply a slice including the 2000 smaller companies of the Russell 3000 index. This small-cap company orientation makes it a useful counterweight to the other large-cap indices on this list.

The Russell 2000 is commonly used as a benchmark for small-cap mutual funds and ETFs. Since it includes so many companies, it provides a general view and outlook of the overall US economy.

The ten largest holdings in the Russell 2000 as of 9/30:

You may recognize a few of these companies, but generally the holdings within the Russell 2000 are significantly more obscure. This list of the top ten holdings is just for comparison purposes. The other indices have a definitive large-cap slant and the top holdings have a greater influence on the performance of the index.

These ten holdings within the Russell 2000 make up only 3.14% of the index, and no individual company will have a significant impact on the index overall. This is why the Russell 2000 is the preeminent small-cap index.

This is a Year-to-Date chart of the performance of the Russell 2000 as of 9/30:

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There is little reason to be concerned by the statements, “The Dow dropped 600 points in today’s trading,” or “The S&P fell 3.4% during the past week,” or even “Does the Russell 2000’s recent performance show us the weakness in the US economy?”

You can see that on a YTD basis, the stock market is struggling. We expect this to happen though. There always have been and always will be years where the market is down. The headline movement seen daily and even the yearly movement of any index should not impact any investment decisions.

Now, you’ll know what the index is all about AND not to be worried when you hear it is down. You might even be excited about the "sale" on assets and take advantage!

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This is just a quick knowledge drop, take care!