What are stock market indexes?
The over-all movement of stock markets can be simulated by constructing an index of that market. The oldest and most famous index of the U.S. stock market is the Dow Jones Industrial Average (DJIA). The DJIA is composed of 30 large companies. The 30 companies are selected by personnel at Dow Jones. From time to time companies are replaced with other companies. When the DJIA was first created, the stock price of all 30 companies was added together and divided by 30. This simple formula has become more complex over the years as stock splits, mergers, and other activities have complicated the formula. A broader measure of the U.S. stock market is the S&P 500. The 500 companies are selected by the Standard & Poors Corporation. They are not the 500 largest companies in the U.S. stock market. The index is designed to simulate many different sectors of the U.S. economy. The index is composed of roughly 400 industrial, 40 utility, 40 financial, and 20 transportation stocks. The value of the S&
