Stock indexes are baskets of stocks of corporations. At the time an index is constructed, the value of all the shares of the corporations included in the index serves as the baseline, which could be 100, 1,000, or whatever. As the total values of the included corporations go up or down, the index goes up or down as well by the same percentage. Each corporation's stock fluctuates every day, throughout the day, which means the values of the indexes are constantly changing. Since an index is a larger sample, it will vary less from day to day than shares of an individual company. It's better to focus on the percentage change of the index than the change in points.
The more stocks that are included in the index, the better the indicator of what "the market" is doing. For example, the Dow Jones Industrial Average contains only 30 stocks, whereas the S&P 500 contains 500, although both focus on larger corporations.
The NASDAQ has about 3,000 corporations in its index, but since it includes a lot of smaller corporations, it is considered a different type of market barometer than the DJIA or S&P 500. The Wilshire 5000, despite its name, includes about 6,700 corporations, and is the broadest market index.
Sometimes an index is developed to focus on a smaller segment of the market, such as transportation stocks, to measure how that segment of the stock market is doing.
Most indexes are capitalization-weighted, which means that larger corporations (as indicated by the value of their shares outstanding) have a bigger effect on the index than the smaller corporations. (The Dow Jones Industrial Average, which is the most-quoted index, is an exception and is a price-weighted index. That is, the size of the company does not matter.)
You often can purchase or sell shares in an exchange-traded fund (ETF), whose value is (almost) directly tied to the index. (For example, the SPDR ETFs closely mimic the S&P 500 index. Otherwise, the indexes are presented only for information on where the market has moved.
Some people claim that they can predict the direction of the market based on the prior movements of an index, but independent studies show that these predictions are no more reliable than astrology. Therefore, the fact that the NASDAQ has just fallen below (or risen above) 4,000 is mostly meaningless. Nonetheless, there are enough superstitious idiots who act on such "information" that it sometimes becomes a self-fulfilling prophecy.
by the total market value of the corporations. That is the movement in a stock price of a larger company has more of an effect on the index than the same movement in a stock price of a smaller company.
NASDAQ is an "index" as is the Dow Jones, S&P and so on. An index is an average of several stocks and is meant to give you a snapshot of the overall market performance. A "point" on an index is an artificial term that means nothing other than to compare it to the past and future of that same index. So we can say the NASDAQ is at a low point for the year right now, but it is x% higher than a year ago.
A strock price is quoted in dollars and cents. So if the price
of a stock is $54.37, that means each share is worth that much.
If the price on many different stocks go down, the whole
stock market will go down. and your stock may now be worth
$34.32 per share.
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Share price
E.g. On Friday, the Nasdaq dropped 54.37 points, or 1.3 per cent, to 3,999.73. It was only the second time this year the index has closed below the 4,000 mark. February 3 was the last time it ended below that level.
What does it mean? Share price dropped, market value dropped? Earnings dropped?
