Beginner’s Guide to the US Stock Market Indexes

Regardless if you’re new to the world’s stock markets, you’ll know that there’s a rich diversity of asset classes available within this space.

Stocks and company shares are arguably the most popular asset class in the modern financial market, which is why market indexes across the globe have emerged as such powerful indicators for country-specific economies and their performance.

Interestingly, there are approximately 5,000 US indexes, each of which cover a vast array of divisions and niches within the marketplace. We’ll explore this further below, while focusing primarily on the three most dominant indexes in the American marketplace.

America’s Main Indexes – An Overview

Before we drill down into America’s main indexes, it’s important to understand that while these entities can be constructed and organised in a number of different ways, they’re commonly identified by sector and market capitalisation.

For example, the Standard & Poor’s 500 index (known commonly as the S&P 500) features the country’s top 500 companies in the US, based primarily on their market capitalisation.

To this end, large-cap brands such as Microsoft, Amazon and Facebook dominate this chart, while the constituent committee may consider additional factors including trading history, liquidity, public float and sector classification.

As you’d imagine, the lucrative nature of the S&P 500 Index accounts for approximately 80% of the US stock market’s cumulative value, and in this respect it serves as a tremendous indicator for the economy as a whole.

Dow Jones Industrial Average

Next up is the Dow Jones Industrial Average, which is known as America’s oldest and most revered index in the world.

While this index can be harder to quantify than the S&P 500, the Dow is generally known for its listing of the best blue-chip companies in the US. While this doesn’t offer a broad representation of the marketplace, it does offer an insight into the dividend-value market and the performance of the country’s most consistent stocks.

Other Prominent Indexes

Other prominent indexes include the Nasdaq Composite, which features medium and large-cap technology stocks and companies from outside of the US.

The Wilshire 5000 includes all the stocks from the US market, offering a broad overview of the space for investors.

The Last Word

As we can see, each of these markets boasts different categorisations and types of stock, and it’s important to identify which one offers the best value proposition in terms of your investment philosophy, appetite for risk and core expectations.

When starting out in the market, Id recommend using an online trading platform and demo account to experiment with variable stocks and hone your investment strategies.

This way, you can monitor various indexes and track the performance of specific stocks over time, before finalizing a portfolio that can deliver returns within a chosen period of time.

Moreover, mostly the online trading platforms offer you a great deal of learning which is a great way to progress as a stock investor.