Did you ever wonder how the major market indexes got created and what stocks they contain?
There is a lot of talk nowadays about SP500,NASDAQ and DowJones as how they performed and who can "beat them." Never the less, few people know about their history and about their content, that's it,what stocks those indexes are following.
DowJones Industrials contains just 30 Stocks,the great Nasdaq index has only 100 stocks and SP500 has indeed 500 stocks -:). All those stocks can be found right here (Please note that Russell2000 has over 200kb):
DowJones30 | NASDAQ100 | SP500 | Russell2000
Charles Dow and the Creation of the Averages
Neither financier nor broker Charles Dow was a journalist. The stock averages he devised provided a window for outsiders to view the market; Wall Street types were welcome to use it, but they were not his chief concern.
When Dow came to Wall Street, the investment market of choice was bonds. Investors liked securities that were backed by real machinery, factories and other hard assets. They felt reassured by the predictability of income that bonds offered, as well as the specific dates of maturity when their principle would be returned. The stock market, by contrast, dealt in shares of ownership which had no specific claim on anything a company owned.
People on Wall Street found it difficult to analyze the daily jumble of up-a-quarter and down-an-eighth or whether stocks generally were rising, falling or staying even. Charles Dow devised his stock average to make sense of this confusion. He began in 1884 with 11 stocks, most of them railroads. Railroads were among the biggest and sturdiest companies in America at that time, which is why they dominated Dow's first average. Few stocks of industrial companies were publicly traded, and those were considered highly speculative.
On May 26, 1896, he introduced the industrial average. In October of that year, Dow's original average shed the last of its non-railroad stocks and became the 20-stock railroad average. To complete this line of history, the utilities average came along in 1929 -- more than a quarter-century after Dow's death at age 51 in 1902 -- and the railroad average was renamed the transportation average in 1970.
Nowadays, of course, there are plenty of indicators to tell investors what the stock market is doing. But most people rely on the Dow Jones Industrial Average. The Dow Jones Industrial Average is in sync with other major market barometers. That's true despite the difference in computation methods; the Dow is unweighted while almost all other indexes weight their stocks by market capitalization, which is price times shares outstanding. It's also true despite the fewer number of stocks in the Dow.
The Dow's durability, is in the selection of companies that make up the industrial average. Though there is occasional criticism on this assemblage, collectively, the 30 Dow industrial stocks represent every important sector in the stock market (except transportation and utilities), and they respond to every important factor in the economy.
There isn't anything to prevent Nasdaq issues from being added to the industrial or utilities averages. The tradition of using Big Board stocks stemmed from Charles Dow's intent of using only the most respectable stocks in his averages. Over time, those choices became the blue chip companies of America, and invariably they were listed on the New York Stock Exchange. That's no longer true, as several blue chip companies choose to trade on Nasdaq.
(originally an acronym for National Association of Securities Dealers Automated Quotations)
When it began trading on February 8, 1971, it was the world's first electronic stock market. NASDAQ is now the largest U.S. electronic stock market. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other stock exchange in the world. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks.
The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies including investment companies. The NASDAQ-100 Index is calculated under a modified capitalization-weighted methodology.
The Standard & Poor's 500 is a market-value-weighted index (shares outstanding multiplied by stock price) of 500 stocks that are traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and the NASDAQ National Market System. The weightings make each company's influence on Index performance directly proportional to that company's market value. It is this characteristic that has made the Standard & Poor's 500 Index the investment industry's standard for measuring the performance of actual portfolios..
Companies selected for the Standard & Poor's 500 Index are not chosen because they are the largest companies in terms of market value, or sales, or profits. Rather, the companies included in the Index tend to be representative of important industries within the U.S. economy and many also are the leaders of their industries. When the U.S. Department of Commerce developed its Index of Leading Economic Indicators in 1968 to signal potential turning points in the national economy, it chose the S&P 500 Index as one of the components.
The origins of the Standard & Poor's 500 Index go back to 1923, when S&P presented a series of indices that included 233 companies grouped into 26 industries. In 1957 S&P introduced the 500 and has expanded its representation over the years to encompass approximately 90 specific industry groups. Four major industry sectors have also been developed: Industrials, Utilities, Financials, and Transportation. The number of companies in each major industry sector has been allowed to float since 1988 in order to enable the S&P Index Committee to react efficiently to an increasingly dynamic economy and stock market.
In contrast, the Dow Jones Industrial Average (DJIA), which was first published in 1884, is based on a narrow set of stocks and a different calculation methodology. The DJIA is a price-weighted average tracking the stock performance of 30 blue chip companies. While the Dow Jones Industrial Average is adjusted for stock splits and referred to as an index in the financial media, the DJIA measures average price movement only, without regard to market value. As a result, the higher-priced stocks within the DJIA often have a greater effect on the DJIA Index than the lower-priced ones. A large change in the price of just one DJIA component often may account for more than 50% of the Dow's daily price movement; that is unlikely to happen with the S&P 500 Index.