Stock Indexes: Hotter Than You Think

Today we’re talking about stock indexes. Sound boring? It’s not! It’s just like reading a thermometer. Stock indexes tell you if you’re likely to get burned or bronzed in the financial department.

How do they work? Indexes look at the value of certain stocks in the market to get a sense of the overall health of the economy.

There are several different indexes that measure different spots in the US economy-back patio, shade, full sun-you know the drill. Here are some to watch:

S&P 500 (Standard's & Poor 500): Made up of the 500 most widely-traded stocks in the U.S. Investors use it as an indication of how the market is doing overall. 

DJIA  (Dow Jones Industrial Average): Index of 30 large influential companies in the United States. It's the oldest index and is the one most commonly quoted in the press.

Nasdaq (Nasdaq Composite Index): Contains more technology stocks than other indexes, so it's a good measure for how the tech sector is doing. 

VIX  (The CBOE Volatility Index or fear index): Looks at how investors are betting on the market, rather than the overall value of stocks. It is known as the “investor fear index." Unlike the other indexes listed here, it goes up when investors are fearful and stock prices are falling.

Stocks are often presented like this: S&P 500 +6.86 (.25%). In English this reads “Today the S&P 500 rose 6.86 points, or .25%.” That means the value of the stocks in the S&P 500 increased by .25% today.

Point of order-what’s a point? It depends on the index, but essentially stock indexes are written in points instead of dollars because talking about several billion dollars is confusing. It’s like making a cake with 96 tablespoons of flour. Wouldn’t you rather just measure 6 cups? So would the stock gurus.

Ready to learn more? Jump in and look at the indexes. Play around with the time settings to see the last day, month, and year and compare the different indexes to see which ones are rising and falling the most.