Market Update

The Dow Jones, the S&P 500, Nasdaq

Created in 1896 by Charles Dow and Edward Jones and named after them, the Dow Jones Industrial Average consists of 30 of some of the largest companies in the United States. American Express, Apple, Microsoft and Walmart are just a few of the companies represented here. Ironically when the DJIA was created the country was in a heavily industrialized period however today there are few industries per se but a cross-section of different corporations.

The S&P 500 in the opinion of many, is the better indicator of the United States stock market. As the title implies there are currently 500 companies represented here. This index is computed with what is known as a ‘Weighted Average Market Capitalization’ which is based on multiplying the stock price and the outstanding shares. The ‘weight’ is calculated by dividing the market capitalization of each of those stocks by the total market capitalization of the S&P 500. Then the similar weights and capitalization is multiplied, and all 500 stocks are added together which then creates the S&P 500 Index Price.

The Nasdaq was initially an acronym for the “National Association of Securities Dealers Automated Quotations”. This exchange has been known for many of the ‘tech’ companies that has made up it’s index.

The idea of a ‘Stock Market’ was actually started in the Netherlands in 1602 by the Dutch East India Co. when it then began using paper shares. Although there are 60 Stock Market exchanges globally, the US stock market is by far the largest, making up 40% of the world’s exchanges (Japan is second at 7.5%).

Today the market is traded using the decimal system. Until 2001 when a trade was affected it was done in fractions of 1/8.

It is a generally held concept that the economy is the sole reason for movements in the stock market, however upon further analysis you would discover that the market fluctuates as a result of millions of investors who think they know which way the market is going to head. By carefully observing the beliefs and attitudes of the investing public, you ‘could’ surmise a trend in the equity markets. These trends can sometimes move swiftly but it is not unusual to see them last for months. Sometimes years. It would not be misleading to believe that the stock markets are controlled by human emotions.

Because of these emotions, if people believe that the market will rise, they will jump in. Usually near the highs due to not wanting to ‘miss out’. Conversely when most investors see prices begin to fall, they have a belief that this downtrend may continue and despite ‘hoping’ that the pain will end, will usually sell. Depending on the volume of shares transacting, the state of the economy and the bad news that accompanies these situations can lead to a mass sell-off. This usually occurs near the market bottom and is aptly named as a ‘Panic Bottom’.

GaneWisdom/Market Edge uses a multitude of data, index calculations, and indicators of various sectors in determining the market opinions that are generated weekly to it’s subscribers.