And, what are some other indexes an investor should follow?
Let’s start with some history about the Dow. The Dow Jones Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index created by Wall Street Journal editor and Dow Jones Company co-founded Charles Dow. It was founded on May 26, 1896. The index is named after Dow and one of his business associates, statistician Edward Jones. It is an index that shows how 30 large publicly owned companies “Blue Chips” have traded during a standard trading session. The Dow is not a weighted index (does not take market capitalization into account) but a price-weighted index, meaning that stocks with higher prices per share affect the average more.
The 30 companies included in the Dow are 3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron, Travelers, Coca-Cola, DuPont, Exxon Mobil, General Electric, Cisco, Hewlett Packard, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald’s, Merck, Microsoft, Pfizer, Procter & Gamble, United Technologies, Verizon Communication, Wal-Mart, and Walt Disney.
Although the Dow shows how the stock market is trading for the day, there are other indexes an investor should follow that will give the investor a better feel for the different segments of a market.
- The S&P 500 is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in industries within the US.
- The S&P MidCap 400 provides investors with a benchmark for mid-sized companies. The index seeks to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the broader mid-cap universe on an on-going basis.
- The Wilshire 5000 Total Market Index is a capitalization- weighted index and intended to measure the performance of the entire U.S. stock market. It contains all U.S.-headquartered equity securities with readily available price data.
- The Russell 2000 ® Index is a capitalization-weighted index designed to measure the performance of the 2,000 smallest publicly traded U.S. companies based on market capitalization.
- The Nasdaq-100 Index is a “modified capitalization-weighted” index designed to track the performance of the 100 largest and most actively traded non-financial domestic and international securities listed on The Nasdaq Stock Market.
- The bond market also has several indexes an investor should follow such as the Barclays Capital Aggregate Bond Index, J.P. Morgan Government Bond Index, J.P. Morgan Emerging Market Bond Index and Barclays Capital Treasury and Corporate Index.
- Not considered an index but the 10 year Treasury note rate provides an overall indication on changes in mortgage rates. When the rate on the 10 year Treasury note changes, mortgage lenders will react and change the current rate for 30 year fixed rate mortgages. Historically, the 30 year fixed rate mortgages have been about 1.7% to 2% higher than the 10 year Treasury.
These are indexes that Fergerson Financial will follow to understand the market changes during the day and the trends over a period of time. You should continue to follow the Dow but keep in mind many others indexes are available to the investor that give the investor a better feel for the different segments of the market.
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