By: George Joshua
Today the stock markets were surprisingly volatile, causing investors to wonder what they would do with their investment. However, while the major indices of the market are down, a lot of good stocks are up. It is important to diversify your investments. Having a broad based portfolio is a key to success in the stock market.
Dow Jones Industrial Average
The Dow Jones Industrial Average is one of the most widely followed indicators of the health of the US stock market. It tracks share prices of 30 blue-chip stocks. Unlike other indexes, the Dow is price-weighted, meaning higher shares carry more weight in the index.
However, the Dow is not the only stock market index. Another widely-followed measure is the S&P 500. While the Dow focuses on large-cap stocks, the S&P focuses on mid-cap and small-cap stocks.
When the S&P 500 is compared to the Dow, it reveals the fact that the S&P is more concentrated in technology stocks. Since the Dow is a price-weighted index, higher share prices carry more weight in the DJIA than in the S&P.
S&P 500 Index
S&P 500 is an index of 500 publicly traded American companies. It is one of the best indices to gauge the state of the economy. The indices are compiled by S&P Dow Jones Indices LLC.
The indices are compiled by using a capitalization-weighted methodology. As a result, stocks with larger market valuations have a greater impact on the overall index.
The indices are updated in real-time. Most stock quote data is provided by BATS. In addition, the Chicago Mercantile Exchange (CME) owns certain market data.
The index’s largest contributor is the IT sector. Besides the usual suspects, the S&P 500 also includes stocks of utility companies.
Nasdaq 100
Today’s Nasdaq 100 stock market results include the same old names as last week, but a few new faces. The list is always changing as companies merge or go out of business, but one can always count on the Big Blue to provide a snapshot of the major industry groups.
The NASDAQ-100 is not a single stock index but rather a weighted index that combines 100 of the largest non-financial issues listed on NASDAQ. These companies are grouped into four industries. They are technology, media, transportation and financial services.
There are two types of stocks that are eligible for inclusion in the index: NASDAQ-listed common stock and shares of a limited partnership. Each is weighted by its market cap, which is a mathematical arithmetic function of the amount of money a company’s owners have put into it. For example, a company that is worth $100 billion has twice the influence on the index as a stock with a market cap of $50 billion.
Personal Consumption Expenditures (PCE) Price Index
The personal consumption expenditures price index (PCE) was released today and showed a 5.5% year-over-year gain. It’s a relatively small amount compared to the Fed’s 2% target, but it’s still above the previous level.
Personal consumption expenditures is a measure of how Americans are spending their money. The Bureau of Economic Analysis releases the data monthly. They’re broken down by services, durable goods, and nondurable goods.
The PCE price index is a good indicator of how the economy is performing. It includes a broad range of goods and services, and it changes on a regular basis.
In November, the personal consumption expenditures price index rose 0.1% from the month before. It was a modest increase, but it was better than what Wall Street had expected.
European stock markets fell sharply
The European stock markets fell sharply today following a downbeat trading session on Wall Street. A survey of economists from Bloomberg said the euro area economy will barely grow this quarter, and could drop into a recession in the final three months of the year.
After a strong summer rally, investors have become more wary. Central banks have indicated they need to raise interest rates, and a number of reports showed inflation is rising.
Amid the uncertainty of the macroeconomic environment, companies are struggling to maintain margins. While the global energy crisis is not an immediate threat, it will take a toll on future earnings estimates.
Diversification is a key to success in the stock market
Diversification is a crucial part of successful long-term investing. It can reduce risk and stabilize returns. But there is more to it than just spreading your money among different asset classes.
Diversification can be achieved by choosing the right strategies. One approach focuses on selecting assets that offer uncorrelated returns. Another is to diversify by industry and geographic location.
Diversification may also be measured by picking a well-diversified set of stocks. This can help to smooth out your returns, reduce risk and even increase your potential returns.
There are many ways to do this. Some of the most basic methods include pooling your money or investing in a broad market index.
