investing

4 stock indexes and their market clout

Which stock index should you follow?
4 stock indexes and their market clout

Whether it's the Dow Jones industrial average, the Nasdaq stock market, Standard & Poor's 500 index or the Russell 2000, investors use these popular indexes to get a sense of how the overall market is doing.

But these indexes aren't created equally. The Dow Jones, Nasdaq and Russell 2000 will only give you a glimpse into certain areas of the stock market while the S&P will provide a broader snapshot of market, although it's mainly for large- to medium-sized companies.

"The S&P 500 is the best barometer because it represents close to 80 percent of the market cap of all stocks publicly traded," says Jerry Harris, president of Sterne Agee Asset Management in Birmingham, Ala.

Often, investors will assume a high-flying stock market translates into a booming economy, but that isn't always the case. The stock market is typically driven by company news, economic data, and rumors and speculation. On the other hand, the economy is driven in part by the number of jobs and workers' paychecks -- not by whether Apple will come out with a new iPhone.

But what the different indexes can do is give investors a sense of certain industries, company sizes and the performance of that market grouping. Here's a look at how each of the major indexes stack up as indicators of overall stock market performance.


 

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