The stock exchange can be complicated and intimidating to beginning investors. When building a portfolio, you may be wondering what the stock market numbers mean and what it means when the market is "up" or "down." Tracking numbers on the stock market will vary slightly depending on which index you are using.
Stock Numbers Meaning
The stock market numbers refer to the value of stocks, or what they are trading at. This is the cost for one share of a stock. You can review stock market numbers on several different market indices. There are many market indices in the United States, including Nasdaq Composite Index, Down Jones Industrial Average (DJIA) and NYSE Composite Index, to name a few.
According to the U.S. Securities and Exchange Commission (SEC), these market indices track the performance of a collection of stocks using the numbers representing their valuation. While the indices do not cover the entirety of the U.S. stock market, they cover high-profile stocks considered to represent a particular market or sector of either the U.S. stock market or economy.
There is an index for almost every sector of the economy and stock market you can think of. When, for example, someone says, "Dow Jones is down," they mean the stocks included in the DJIA index are down and therefore the performance of stocks within that sector, represented by stock market numbers, are down.
The Nasdaq Composite Index
The Nasdaq Composite Index, most often referred to simply as "The Nasdaq," is a stock market index that tracks over 3,000 stocks in the Nasdaq stock market. According to writers from Nasdaq, it comprises mainly technology companies, followed by consumer services making up close to 20 percent and healthcare comprising about 10 percent.
Consumer goods, financials and industrial stocks are also included, as well as a small number of utilities, oil and gas, basic materials and telecommunication stocks. It's not to be confused with the Nasdaq-100, which is another index that tracks the performance of 100 non-financial companies listed on the Nasdaq exchange.
The Nasdaq Composite Index is calculated with the market capitalization weighting method, meaning that the most prominent companies have the most significant impact on the index's final value. To calculate this, you will need to multiply the total value of the share weights of all the stocks in the Nasdaq exchange by each one's closing price. This value is then divided by an index divisor, which is specific to that index.
The Dow Jones Industrial Average
According to the SEC, the Dow Jones Industrial Average (DJIA) tracks the performance of 30 "blue chip" stocks of U.S. industrial companies, which are stocks in large, well-known companies with a history of growth.
Within the DJIA index are various financial service companies, computer companies and retail companies. Transportation and utility companies are excluded from the DJIA and are included in other indices.
Unlike the Nasdaq Composite Index, the DJIA is not weighted, which means it does not consider market capitalization in its calculations. Instead, the DJIA indicates the average stock price, per share, for each company, CFI writes. The calculations use a value called "the Dow divisor" to accommodate market fluctuations.
The NYSE Composite Index
The NYSE Composite Index tracks the prices of common stocks on the New York Stock Exchange, SEC writes. According to NYSE, it is calculated on both price and total return basis.
The NYSE Composite Index also includes foreign companies listed on the NYSE in addition to American stocks. Under the NYSE Composite Index are separate indices for industrial, utility, transportation and financial companies.
Unlike the Dow Jones Industrial Average, which focuses on a selection of stocks, the NYSE Composite Index reflects all stocks trading values in the New York Stock Exchange. Whenever you check the NYSE or stock market websites, you'll see all of these numbers, so you should familiarize yourself with the trading abbreviations for any companies whose progress you are particularly interested in seeing.
Consider also: What Are the Stocks That Have Number & Hyphen Symbols?