Most investors know that there are three crucial US stock indices: the Dow Jones Index, the Nasdaq Index, and the S&P 500 Index. However, novice investors may not be very familiar with these three indexes and how to trade them. This article will introduce the significance of these three U.S. stock indexes and how investors should use them when investing.
1. The Dow Jones Index, an indicator of overall market performance
As a stock index with a long history, the Dow Jones Index was founded over 100 years ago. Its constituent stocks are only 30 and are the largest well-known listed companies in the United States. Of course, everyone knows that there are more than 10,000 US public companies (stocks). Therefore, the Dow Jones Index, which has only 30 constituent stocks, has also been criticised by many experts and scholars. They believe that the 30 constituent stocks are not representative of the entire stock market. However, investors must understand that these 30 constituent stocks are highly regarded in the United States. In addition, the companies included in the index all have a substantial reference value, which can be used as an indicator of the overall market performance.
2. The Nasdaq Index, an essential indicator for technology stocks globally
The Nasdaq Index was established in 1971. Its constituent stocks include those listed on Nasdaq in the United States. It is the most important indicator for technology stocks in the world. The Nasdaq Index has over 5,000 constituent stocks, and its coverage includes Biochemical technology and other fields, such as computer software and hardware, semiconductors, and network communications. It forms a necessary reference standard for investing in technology stocks.
Why is the Nasdaq index market an over-the-counter market?
Investors in the Nasdaq index conduct transactions via telephone or the Internet in advance and do not need to trade on a physical trading floor. Most of the transactions are related to the high-tech industry, especially computers. It was the world’s first electronic securities trading market. The Starck Index has its market system, and it is an independent transaction system that undertakes the buying and selling of stocks for investors.
Over-the-counter trading refers to the securities of unlisted or listed companies that are no longer traded on the exchange but are traded on the over-the-counter market. These stocks trade privately at a price higher or lower than the price specified in the function meeting. The transactions concluded at prices with other conditions are called store transactions or counter transactions.
3. The S&P 500 Index, an indicator of the rise and fall of the US economy
The S&P 500 Index is the overall measurement standard for the top 500 listed companies in the United States. The rating company Standard & Poor’s selects 500 leading companies from all industries in the U.S. stock market based on market capitalization and liquidity. The stocks are drawn from both the NYSE and NASDAQ. The S&P 500 index contains many more companies than the Dow Jones Index. Therefore, it can better reflect the changes in the US stock market, and the risks are more diversified. In addition, the weighting methods used by the S&P 500 Index and the Dow Jones Indices are very different. The Dow uses stock price weighting, while the S&P 500 uses market value weighting, which can better reflect the actual value of each company’s stock while reflecting the rise and fall of the US economy.
One last thing everyone should pay attention to is that the three leading U.S. stock indices mentioned above contain different constituent stocks. For example, if investors buy Google shares, the rise and fall of Google’s stock price will not affect the Dow Jones Index because Google is not a component of the Do. In addition, none of the three U.S. stock indexes can include all the daily price changes in the U.S. stock market. Therefore, when investing, traders must not just look at one U.S. stock index. It is crucial to combine the three indices and compare them to each other. You must also have a trading strategy so that you can make the right decision.