Understanding Financial Indexes: A Comprehensive Guide

A financial index is a statistical guide to the values of securities, or stocks, bonds, etc. In a stock index, a certain number of stocks are tracked and the values are averaged using a specific formula to indicate the overall market performance. In the United States, the four major financial indices are Standard & Poor 500 (S&P 500), Dow Jones Industrial Average (DJIA, also called "The Dow"), NYSE (New York Stock Exchange), and NASDAQ.

S&P 500

The S&P 500, as the name suggests, track the stock values of 500 companies. It has been most commonly used as a major indicator of the overall market performance in the U.S. A group of economists and financial analysts select which companies are included on the list. They determine which best represent the market as a whole. Many experts look to the S&P 500 to determine the current economic health of the country and to make predictions about fluctuations in the overall average values of securities in the near future.