US stock market Indexes - Research Paper Example

The index is used in the context of actual 500 companies having their stocks in it. All the companies are publicly held and trade on NASDAQ, one of the two largest US stock markets. The S&P 500 comes on the second number as the most widely observed index of large-cap US stocks in comparison to the Dow Jones Industrial Average (DJIA), which is the no. 1 large-cap US stock. Otherwise, the S&P leads the US economy as a part of the index of leading indicators (“Real Time Charts,” 2008). The Dow Jones Industrial Average index was compiled to measure the industrial component of America’s stock markets, which is the oldest continuing U.S. market index.

Currently, it consists of 30 of the biggest and vastly held companies in the U.S. The “industrial” name is no more relevant as many of the 30 modern components are unrelated to heavy industry. To make up the effects of stock splits and other settings, DJIA is currently a scaled average, not the real average of the prices of its component stocks. To generate the value of the index, the total of the component prices is fractioned by a divisor that changes over time (“Real Time Charts,” 2008).

The NASDAQ Composite is a stock market index of all of the common stocks and similar securities like ADRs, tracking stocks, limited partnership interests, listed on the NASDAQ stock market, which means that it has more than 3,000 components. It is renowned as an indicator of the performance of stocks of technology companies and growth companies in the US (“Real Time Charts,” 2008). On the other hand, a number of index funds and exchange-traded funds follow the performance of the S&P 500 by keeping the same stocks as held by S&P 500 in the same values to reach near its performance level.

Such companies that have added their stock to the S&P 500 list may see a rise in their stock price as the managers of the mutual funds have to purchase that companys stock