Stock market indices provide investors with an overview of the performance of a select group of stocks. Clustered around an industry or the overall stock market, indices can be beneficial to both experienced and novice investors alike.
Index weightings can be determined by many factors, but two of the most popular are equal-weight and market capitalization-weighted indexes.
S&P 500
The S&P 500 is one of the most widely followed stock market indices. It measures 500 large-cap companies that are publicly traded in America.
For a company to be included in the index, it must meet several criteria. Two of the most crucial are market capitalization and public float.
Finally, the company must have achieved positive earnings in both the most recent quarter and over all four previous quarters combined. This requirement helps guarantee that the S&P 500 represents an even representation of American businesses.
The S&P 500 is a free-float, market cap weighted index composed of all 500 public companies listed on either the New York Stock Exchange or Nasdaq. To calculate its weighting, each company’s share price is multiplied by its number of outstanding shares. The larger a company’s market capitalization, the greater impact it will have when its stock price changes.
DJIA
The DJIA, one of the world’s most influential stock market indices, tracks daily price changes for 30 major American companies. Established by Charles Dow in 1896 and still published today, this index has become one of the world’s most important indicators.
The DJIA is a price-weighted index, meaning stocks with higher share prices receive greater weight in the index. Unlike other indices, however, the DJIA does not take into account market capitalization or percentage changes in share prices.
Another major limitation of the DJIA is that it does not take into account stock splits or dividends. This can lead to inaccurate readings when it comes to assessing market sentiment.
The DJIA has been a widely watched stock market index for decades. It comprises blue-chip companies with proven financial success and stability.
SENSEX
Sensex is one of the major market indices in India. It tracks the performance of 30 top stocks from various sectors.
The Sensex index serves as a barometer of the Indian stock market and economic growth in India, helping investors assess market direction and trends.
It is a free-float market capitalization methodology index composed of 30 large to mega-cap companies listed on the Bombay Stock Exchange (BSE). It serves as an important barometer of Indian equity market sentiment, price fluctuations and industry-specific development, among other influences.
To be included in SENSEX, a company must meet several criteria. For instance, it must be listed on the BSE and engaged in core activities that generate profits. Furthermore, it should have liquid assets and be relatively well-established, with an impressive balance sheet within its sector.
DAX
The Deutscher Aktien Index, commonly referred to as DAX, is one of the world’s most significant stock market indices. It measures the performance of 30 leading blue-chip companies trading on Frankfurt Stock Exchange.
The DAX index is calculated using a free-float market capitalization methodology, meaning it only includes shares available for trading, not those held by insiders.
DAX-listed companies are weighted according to their market capitalisation, meaning bigger firms with larger shares have a greater influence over the index’s price than smaller ones. This method of calculation is commonly used when computing blue-chip indices and similar to how the Dow Jones Industrial Average works in the U.S.
The DAX index has long been a reliable barometer of Germany’s economic health. Traders can use it as an indication to assess which companies are performing well and which may be vulnerable to market shifts.
