Market Indices

What is an index?

Remember: A stock market index is simply a basket of stocks that are followed by investors.There are four main indices reported in the media:• The S&P/TSX Composite Index• The Dow Jones Industrial Average• The S&P 500 Index• The NASDAQ Composite IndexWhat does each one tell us?

The S&P TSX Composite

• S&P stands for Standard’s & Poors. This is a major American financial company.

• The S&P TSX composite index is a listing of the largest equities traded on the TSX (decided by market capitalization)

• These stocks represent all different types of sectors.

The Dow Jones Industrial Average

As we saw at the beginning of this course, the DJIA is a listing of 30 large American companies that are traded on the New York Stock Exchange or the NASDAQ.This index allows us to see what trends are occurring in the American equity markets.

S&P 500 Index

• This index follows 500 large-cap American corporations. This index is weighted so there is more influence by larger-cap companies.

• Companies are added or deleted depending on analysis from Standard’s and Poor’s.

NASDAQ Composite Index

• The NASDAQ stock exchange, located in New York, lists primarily technology and growth companies.

• It stands for “National Association of Securities Dealers Automated Quotations”

• The NASDAQ composite index follows many Hi-tech companies and growth corporations and is seen as an indicator of these sectors.

Questions

1. What is a market index and what does it do?2. Why would an investor care if “the TSX

composite index dropped 2% today”?3. Draw a rough sketch of what has been

happening to the S&P TSX composite index over the last year.

4. Compare your portfolio’s performance compared to the TSX composite index.