What is a Stock Market Index?
What is a Stock Market Index?
“How did the stock market do today?”
At surface, this seems like a simple question – but it’s also deceptively difficult to answer. The market can be defined as many different things, and there are actually over 100,000 publicly traded companies in the world to choose from.
Luckily, the use of a stock market index can help define a particular market, as well as track its performance in a way that is easy to reference.
Types of Indices
Today’s infographic from StocksToTrade.com defines a stock market index as a thermometer that measures the health of a group of stocks. When this particular group of stocks changes in value, the index follows it along.
A stock market index can track a group of stocks based on several different factors:
Global: Some indices, such as the MSCI All-Country World Index, aim to be a proxy for all global equities.
Regional Geography: A stock market index can also track a specific region, such as Europe. As an example, the EURO STOXX 50 tracks the performance of the largest and most liquid 50 stocks in the Eurozone.
National: Indices can also serve as a proxy for the performance of an entire country’s equities. The FTSE 100 in the United Kingdom tracks the 100 largest companies traded, which total to 81% of the total market capitalization of the exchange.
Industry: A stock market index can try to track the performance of an industry as a whole. The GDXJ, for example, is an ETF based on an underlying index that tracks the performance of smallcap mining companies focused on gold and silver.
Exchange: Indices also are used for specific exchanges. The S&P/TSX Venture Composite Index, for example, is used to represent the performance of companies that trade on the TSX Venture exchange in Canada.
Main Indices in the U.S.
Last year we did a graphical primer of the differences between the main indices and exchanges in the U.S., but we’ll summarize the major indices here as well.
S&P 500: First calculated in 1923, the S&P 500 covers the largest companies on the NYSE and Nasdaq exchanges in the United States, and represents $21.4 trillion in value.
Dow Jones Industrial Average: The DJIA is a price-weighted index of 30 significant companies traded on the NYSE and Nasdaq. It has a market capitalization of approximately $6 trillion, and was founded back in 1885.
Nasdaq Composite: Used more as a proxy for the technology industry, this index tracks 3,000 equities on the Nasdaq exchange, worth $6.8 trillion. It does include some companies not located in the U.S.
Interested in learning more about exchanges and indices? See the 20 largest stock exchanges in the world.
Animated Chart: The S&P 500 in 2023 So Far
Track the S&P 500’s performance in 2023, including all 500 companies, and the sectors they belong to, in this animated video.
The S&P 500’s Performance in 2023 Q1
With one quarter of 2023 in the books, how has the S&P 500 performed so far?
The index had a tumultuous 2022, ending the year down 18%, its worst performance since 2008. But so far, despite dealing with tight monetary conditions and an unexpected banking crisis, the S&P 500 has promptly started to rebound.
The above animation from Jan Varsava shows the stock performance of each company on the S&P 500, categorized by sector.
Biggest Gainers on the S&P 500
The S&P 500 increased 7.5% during the first quarter of 2023. Though it was led by a few big outperformers, more than half of the stocks on the index closed above their end-of-December prices.
Here are the top 30 biggest gainers on the index from January 1 to March 31, 2023.
|4||Warner Bros. Discovery||59.3%|
|12||Monolithic Power Systems||41.8%|
|14||GE Healthcare Tech||40.5%|
|22||Royal Caribbean Group||32.1%|
|23||ON Semiconductor Corp||32.0%|
|25||Cadence Design Systems||30.8%|
Nvidia shares gained the most of all the companies on the S&P 500 in Q1 2023, posting a staggering 90% return over three months.
As the world’s largest chipmaker by market cap, Nvidia gained from both strong earnings and semiconductor industry performance. It also benefited from the rising prevalence of artificial intelligence (AI) through software like ChatGPT.
Meanwhile, other tech giants Apple and Microsoft gained 27% and 21% respectively over the same time period.
Tech Leads Returns by Sector
The technology sector as a whole was the best performing sectoral index thanks to these big moves, up 21.7% at the end of March.
Shares of other tech-adjacent companies like Meta (formerly Facebook) and Tesla—listed on the S&P 500 under the categories of communication services and consumer discretionary—also had a strong start to the year and lifted their respective sectors.
Meta in particular is up 76% in Q1 2023, continuing its rebound after falling to an eight-year low in November 2022 on the back of better-than-expected fourth quarter results and share buybacks.
Biggest Losers on the S&P 500
On the other side of the S&P 500, the financial sector was rocked by sudden collapses.
Signature Bank and Silicon Valley Financial Group shares lost the most ground in the first quarter, after both banks collapsed, shedding nearly all of their value in a matter of 30 days.
In fact, seven of the 10 worst performers on the index to start 2023 are banks or financial companies. The visualization shows the ripple effect on the market after the collapse of regional banks in March, and the ensuing rout driving the entire sector down 5.6% year-to-date.
Here are the top 30 biggest losers on the index from January 1 to March 31, 2023.
|2||Silicon Valley Financial Group||-99.6%|
|3||First Republic Bank||-88.5%|
|6||Charles Schwab Corp||-36.9%|
|10||Lincoln National Corp||-25.8%|
|14||Citizens Financial Group||-22.1%|
|15||Enphase Energy Inc.||-20.6%|
|16||Baxter International Inc.||-19.9%|
|17||Truist Financial Corporation||-19.9%|
|18||American International Group||-19.8%|
|19||CVS Health Corporation||-19.7%|
|27||PNC Financial Services||-18.8%|
|29||Fifth Third Bancorp||-17.8%|
Despite the tight monetary landscape, traditionally defensive sectors like energy, consumer staples, and healthcare also underperformed the broader index. This is a reversal from market trends seen in 2022.
Investment Trends to Watch for in 2023
Experts predict a pause in U.S. interest rate hikes “sometime in 2023” but it’s unclear when (or at what level) the pause will take place given persistent inflation in the economy.
However, if interest rates level off in 2023, it could be a key momentum maker for the S&P 500. As Barron’s points out, the index tends to rise after hikes are paused.
Meanwhile, the current tumult in the financial sector is fanning the flames of recessionary fears. How effectively regulators manage the crisis might be the story of the year.
Finally, as we have seen in 2023 so far, investor interest in AI has sent tech stocks soaring. Is this a quick fad, or an overarching trend for the year?
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