Indexes, Benchmarks, & Bitcoin: Understanding Market and Trading Jargon

Do you ever hear pundits rattle off index prices only to realize you have no idea what they’re saying? 

Or maybe you watch your trader friends nod along to the endless crawl of flashing prices — foreign currencies, cocoa beans, lean hogs, and so much more. You want to ask what the heck it all means but are too embarrassed.

Don’t sweat it any longer. You’re in the right place to up your market education. First, take a deep breath. You got this.

Today we’ll cover everything you need to know to read index prices with confidence.

StocksToTrade’s brand-new newsletter Market Grind covers the Nasdaq, the S&P 500, and the Dow Jones indexes … as well as the 10-year Treasury note and bitcoin. And it’s all on a daily basis. 

Of course you want to keep up with it all, right?

So let’s briefly cover what it all is and what it all means. In no time at all, you’ll understand the Market Grind indexes numbers every morn, just like a pro.

Nasdaq Composite

What It Is

Since 1971, the Nasdaq Composite index has tracked almost all of the stocks listed on the Nasdaq stock exchange. These stocks are geared heavily toward the information technology sector, i.e., tech stocks. 

How It Works

The Nasdaq Composite is capitalization weighted. In plain English, that means that the companies with the highest market caps have the most influence over the index value. The index’s daily price is a calculation of average opening and closing prices for nearly all the stocks trading on the Nasdaq exchange.

Why It Matters

Today, tech companies dominate the U.S. economy. Even companies that aren’t pure tech by definition are likely doing business with one in some way. 

Since the dot-com boom, the Nasdaq Composite’s profile has risen considerably as tech stocks consistently outperform the broader market.

Standard & Poor’s 500

What It Is

Meet the Standard & Poor’s 500 — aka the S&P 500 or S&P. This index includes 500 of the most powerful companies listed on U.S. exchanges. It’s BIG. Think of it as the ultimate benchmark of major U.S. equities. 

The S&P 500 is often considered the most representative of the major indexes. That’s because it includes a broad range of companies from diverse sectors.

How It Works

A committee selects the stocks that make up the S&P 500. Like the Nasdaq Composite index, the S&P 500 is capitalization weighted. 

Today, because mega-cap tech companies’ valuations have ballooned into the trillions, the top 10 stocks in the S&P 500 make up over 26% of its entire value … That’s unprecedented. 

Why It Matters

We can’t overstate the importance of the S&P 500. There are roughly $4.6 trillion in global assets tied to its performance. Pension funds, retirement accounts, and mutual funds all use the S&P 500 as a primary investment tool. That’s been the case for decades now. 

In the past, when the S&P 500 lost considerable value, like during infamous stock market crashes, millions of investors around the world felt the effects. The financial damage has been in the trillions. 

But the reverse is also true. Had you invested $10,000 into the S&P 500 each year since 1990 — and done nothing else — you’d have approximately $1.1 million today.

Dow Jones Industrial Average

What It Is

The Dow Jones Industrial Average is most commonly referred to as the Dow Jones or the Dow. It’s a price-weighted index of 30 blue-chip companies listed on U.S. stock exchanges. These are the so-called big boys like Boeing, Coca-Cola, McDonald’s, and Visa. 

You won’t find unprofitable tech startups in the Dow … That’s why many traders and portfolio managers view it as a more reliable benchmark. 

How It Works

It’s up to a committee to select the 30 stocks that make up the Dow. Then the committee weighs the stocks according to share price (as opposed to their market cap). In other words, a stock that trades for $500 will have a higher influence on the Dow’s value than a stock that trades for $50. 

This practice is somewhat controversial. It can cause stock splits to harm a company’s weighting. That wouldn’t happen in a cap-weighted index.

Why It Matters

The Dow Jones is in its 13th decade of existence, and history plays a role in the index’s continued benchmark legacy. The Dow is legendary to a LOT of investors and traders. 

But these days, most portfolio managers would tell you that alternate indexes provide a more accurate representation of the U.S. economy. 

Bitcoin

What It Is

Cryptocurrencies are digital assets that are traded peer to peer. It’s generally unregulated by banks or exchanges. Bitcoin is the largest cryptocurrency by market capitalization. It was created in 2009 by an anonymous person presumably named Satoshi Nakamoto. It’s now the default benchmark for the broader cryptocurrency market. 

How It Works

Unlike exchanges, which consist of hundreds (if not thousands) of real-world corporations, bitcoin refers to a single digital asset. The price swings can be wildly volatile and unattached to traditional metrics such as market cap, earnings per share, or revenue growth.

Why It Matters

Crypto is often criticized by legacy hedge fund managers and old-school traders … But it had a renaissance in the lockdown era. It went parabolic and gained support from institutional investors. 

And, frankly, at a $640 billion market cap, bitcoin is too big to ignore.

10-Year Treasury Note

What It Is

The 10-year Treasury note is a debt obligation issued by the U.S. government. It’s a widely used benchmark for the performance of the broader U.S. bond market. Its performance is also sometimes thought to reflect the global equity market’s longer-term macroeconomic viewpoint.

How It Works

Investment banks go to a government auction to bid on bonds issued by the U.S. treasury. Then they sell them to their customers. 

For normal T-notes, the interest rate is fixed at the auction — and interest is collected every six months until the note reaches maturity. 

T-notes are typically seen as a low-risk investment because you’re guaranteed a certain yield when you buy it. But you also have no opportunity to earn more.

Why It Matters

The performance of the 10-year is seen as a benchmark for the overall bond market. The price fluctuations are also monitored closely during quantitative easing and rampant government spending. 

Conclusion

If you’ve made it this far, congrats! You should now be well on your way to scanning Market Grind’s index coverage with ease. 

There’s a lot to cover on this topic. But each of the indexes we cover provides an important benchmark for a critical sector of the world economy.

Stay tuned to Market Grind every morning for the most up-to-date news on indexes, crypto, securities, meme stocks, and so much more!

More StocksToTrade Resources

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