At least 50% of its assets and revenues must be located in the U.S.The company must have positive earnings for the last four quarters.At least 50% of the company’s stock must be available to the public.The company must have a market cap of at least $8.2 billion.A committee selects companies for the index based on a number of different factors including size, industry, and liquidity, and there are specific requirements that need to be satisfied in order to qualify for consideration: The S&P 500 Index is a basket of 500 of the largest companies of both the New York Stock Exchange (NYSE) and the NASDAQ. The best way of investing in the Dow is through the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), an ETF that groups the 30 companies and weighs them in the same fashion. It also means that the index is irrationally impacted by the price fluctuations of certain companies, Boeing being the main culprit in recent times. This little quirk means United Health with a market cap one fifth that of Microsoft’s, has almost twice the sway in the performance of the index thanks to its greater stock price. However, it does have one inherent flaw that makes it less reliable than the S&P as a market indicator: it is price-weighted, meaning the company with the highest stock price actually has the biggest impact on the performance of the index. It is made up of household names like McDonald’s, IBM, and Boeing and is generally used as a gauge for the relative strength of the U.S. It consists of 30 large-cap companies that represent the might of American industry. The Dow Jones is the oldest and arguably least intuitive index. You will notice that the Nasdaq index (NASDAQINDEX:^IXIC) is usually lumped in with them, however, that does not purport to represent the market as a whole due to its tech-focused composition. In order to compare the two, I will break down the differences between the Dow and the S&P, their composition, and how to invest in them. They are indicators of the relative health of the market as a whole and are called upon to give us a quick summary of economic performance. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) are the two most touted market indices.
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