By: Cleo Washington, Intern | Cleowash@umich.edu
Do you enjoy riding roller coasters? Their exciting ascents and nauseating descents provide a thrill, even though some aspects of the experience are not enjoyable. Likewise, the stock market offers similar ups and downs – taking you on a lifelong investment journey.
America’s two primary stock exchanges (marketplaces for trading financial securities) are the New York Stock Exchange (NYSE) and the Nasdaq. Three major indices, the Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq Composite, track companies listed on these exchanges.
The Dow features 30 U.S.-based blue-chip companies listed on the NYSE and Nasdaq, selected for their reputation and stability. The Dow, unlike other indices, is price-weighted, meaning higher-priced stocks have greater influence on the index’s movement.
The S&P 500 is composed of 500 large, U.S.-based companies across 11 sectors on both the NYSE and Nasdaq. This index is weighted by market capitalization, giving larger companies the most influence.
The Nasdaq Composite includes over 3,000 companies, many of them technology-focused, traded solely on the Nasdaq exchange. It too is market-cap weighted, and features a sub-index, the Nasdaq 100, which tracks 100 large non-financial stocks.
The stock market operates weekdays from 9:30 a.m. to 4 p.m. ET, and is influenced by key economic indicators such as gross domestic product (GDP), inflation, the unemployment rate, and interest rates.
There are two primary market trends: bear and bull. A bear market occurs when share prices fall 20% or more from recent highs, while a bull market occurs when prices rise 20% or more from recent lows. Stock prices are determined by supply and demand – prices rise when demand exceeds supply and fall when supply exceeds demand.
Navigating shifting economic conditions with patience is essential to generating long-term wealth. Just like a roller coaster, staying steady through the twists and turns of the stock market can leave you with a thrilling sense of accomplishment in the end.
Author: cleowash
