Trading Stock Indexes

There are 100s of Exchange Traded Funds (ETFs) and HOLDRS covering key industry benchmarks such as the various Standard & Poor (S&P) Indexes, Russell Indexes or the Dow Jones Products. There are other ETFs that cover the other less well known narrow based sectors. For example, SPY tracks the Standard & Poor’s S&P 500 Composite Index. It is the largest of the ETFs. You should know the major indexes as an investor that are either key benchmarks or have ETFs tied to them.Standard & Poor: Standard & Poor (S&P) has been providing independent and objective financial information, analysis and research for nearly 140 years. It is the financial services segment of the McGraw Hill companies. It is also the provider of equity indexes and these S&P indexes are also used as the basis for wide variety of financial instruments such as Index Funds, Futures, Options and ETFs. Investors around the globe use S&P Indexes for investment performance measurement.
S&P 500 Composite is one of the most popular indexes in the global financial markets. Hundreds of companies around the world have licenses with the Standards & Poor’s for their index products and the influence and name recognition of S&P 500 is unparalleled. S&P 500 is also used as a key benchmark for money manager performance. The S&P 500 is a capitalization weighted index that tracks the performance of 500 large capitalization issues and each year thousands of money managers have the single minded goal of outperforming the S&P 500. S&P 500 represents more than 75% of the capitalization of the entire US Stock Market.

The stocks in the S&P 500 are determined by a nine member committee in accordance with the general guidelines. 30 years back most of the stocks in S&P 500 were from the Industrial Sector. Over the years, the complexion of S&P 500 has changed. By 1970s, six of the top companies were from the Oil Sector. In 2000s, technology composed about one third of the capitalization of the index. The other Standard & Poor’s indexes are the S&P Midcap 400 Index and it is based on 400 chosen domestic stocks. It is also capitalization based and measures the performance of the midsize companies of the US economy.


S&P SmallCap 600 is also capitalization weighted index and is of interest to institutional and retail investors. The S&P SmallCap 600 Index consists of 600 smallcap domestic stocks and these stocks are chosen for market size and liquidity. There are also sub-indexes based on these S&P Indexes.

NASDAQ: NASDAQ Composite Index contains more than 4500+ companies. It represents a market capitalization of trillions of dollars in the US economy. You will often hear in the media that the Nasdaq market being up or down on a given day. There is another Nasdaq Index called the Nasdaq-100. NASDAQ-100 is composed of the top 100 nonfinancial companies in the Nasdaq Stock Market like Microsoft etc. It is a modified capitalization weighted index. The QQQ is based on the Nasdaq-100 Index. The Nasdaq-100 is a modified capitalization weighted index. Modified cap weighting involves adjustments to the capitalizations of the various components of the Nasdaq-100 index. The NDX contract at the CBOE is based on Nasdaq-100 as is the MNX.
Frank Russell Company one of the leading global investment consultants is also involved in performance measurement, analysis and investment management. Several Russell Indexes have become benchmarks for specific areas of investment management. Russell 2000 is the well known benchmark for small capitalization sector. Russell 3000 Index as the name implies includes 3000 issues and is adjusted for certain factors such as cross holdings and the number of pairs in hands. These 3000 companies represent 98% of the US investable equities.

Russell 3000 is further split into subsets like Russell 1000 Index. It covers the top 1000 about 92% of the value of the entire 3,000 stock index. The Russell 2000 Index is the smallest 2000 companies in the Russell 3000 Index.

From the business point of view, the Wall Street Journal is probably one of the most perfect business franchises. A franchise that is very hard to duplicate. The net worth of most of its readers is in seven figures. Dow Jones is the publisher of this journal. Dow Jones Industrial Average (DJIA) comprising 12 smokestack companies made its debut in the year 1896. Over the year DJIA became an important business barometer and grew to encompass 30 large industrial companies.
Wilshire serves over 400 organizations in over 20 countries representing over $2 trillion in assets. Wilshire flagship index is the Wilshire 5000 Total Market Index. It represents the broadest index for the US equity markets. Over the years, it has increased to 6500 issues representing the increase in the number of companies in the US.

The Morgan Stanley Capital International (MSCI) database contains nearly 25,000 securities covering 50 countries. It calculates nearly 3,000 indexes daily and services a client base of over 1,200 worldwide. One of the advantages of MCSI and its foreign indexes is consistency.

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