Major Market Indexes

By Kevin Chambers

Indexes (also called benchmarks) are used as a statistical measure to represent performance for the economy or a particular security market. You may have seen some of them mentioned on the front page of the newspaper or in investment reports. Indexes do not invest in any stocks or bonds, but they take the prices of a certain set of securities and track their price changes over time. Indexes can give a general representation of how the market is moving as a whole, as wells as allow an investor to make comparisons to the performance of their own portfolio.

Dow Jones Industrial Average

The Dow Jones Industrial Average is a price-weighted average of 30 of the largest companies in the United States. Started by Charles Dow in 1896, the Dow is one of the oldest indexes. The companies that make up the Dow have changed many times. Of the original companies in the index, only one remains - General Electric. In its current form, it contains companies that are all household names. The top 5 companies in terms of weighting (in order) are 3M, IBM, Goldman Sachs, United Health, and Home Depot. The Dow is the most popular index for the news media when reporting on market movements; however, it is almost never used as a benchmark for performance for money managers.

S&P 500

The Standard & Poor’s 500 (S&P 500) is a market index that contains 500 of the largest companies listed on the NYSE or the NASDAQ, based on market capitalization. It was first calculated in 1957. The list changes fairly regularly as companies grow and others shrink; in 2013, 18 companies were replaced. The selections are made by a committee. The five largest components of the index are Apple, Microsoft, Exxon Mobil, Johnson & Johnson, and Amazon. The S&P 500 captures about 80% of the available market capitalization in the United States and is regarded by investors as the best gauge of large-cap equities.

Barclays US Aggregate Bond Index

The Barclays US Aggregate Bond Index, or often referred to as the BC Agg, is the most widely used index to track investment grade bonds in the United States. The index, created in 1986, was originally known as the Lehman Aggregate Bond Index. After the collapse of Lehman Brothers, the index was taken over by Barclays Capital. The BC Agg holds 4 types of bonds: Government, Corporate, Mortgage-Backed, and Asset-Backed. The composition of the index is about 35% treasuries, 18% securitized (mortgage- and asset-backed), and 23% corporate bonds[1]. Nearly ¾ of the bonds in the index have an AAA rating.  

MSCI EAFE

The MSCI EAFE Index is an international index widely used for markets of developed countries outside of the United States and Canada. The index was launched in 1969 by Morgan Stanley but has been run independently by MSCI-Barra since 2009. The EAFE stands for Europe, Australia, and the Far-East and, as of 6/30/15, contains 930 securities from 21 countries. The index covers approximately 85% of the market capitalization in each country. The top 5 countries represented 23% Japan, 20% UK, 10% France, 9% Switzerland, and 9% German stocks.