Negative day for the FTSE MIB IDX, which closed the day on Friday, August 26 with a large decline of 2.49% to 21,895.25 points. The FTSE MIB IDX marked a high of 22,565.43 points and a low of 21,888.34 points. The trading range for the FTSE MIB IDX between its high and low (high/low) for the day was 3%.
In relation to the performance over the last seven days, the FTSE MIB IDX accumulated a decline of 2.84%, so over the last year, it still maintains a decline of 16.37%. The FTSE MIB IDX is 22.25% below its year-to-date high (28,162.67 points) and 6.52% above its year-to-date low (20,554.33 points).
What is a stock market index and what is it used for?
A stock market index is an indicator that measures the evolution of the price of a set of assets, which requires data from different companies or sectors of a part of the market.
These indicators are mainly used by the stock exchanges of different countries and each one of them can be integrated by firms with certain characteristics such as having a similar market capitalization or belonging to the same type of industry, in addition, there are some indexes that only take into account a handful of shares to determine their value or others that consider hundreds of shares.
Stock indices serve as an indicator of stock market sentiment, business confidence, the health of the national and global economy, and the performance of a company’s stock and equity investments. Generally, if investors lack confidence, stock prices tend to fall.
They also function to measure the performance of an asset manager and allow a comparison between profitability and risk; to measure the opportunities of a financial asset or to create portfolios.
This type of indicator began to be used at the end of the 19th century after the journalist Charles H. Dow carefully observed how company shares tended to rise or fall together in price, so he created two indexes: one containing the 20 most important railroad companies (as it was the most important industry at the time), as well as 12 shares of other types of businesses.
For example, the US Nasdaq index is composed of the 100 largest technology-related companies such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Facebook (FB), Alphabet (GOOG), Tesla (TSLA), Nvidia (NVDA), PayPal (PYPL), Comcast (CMCSA), Adobe (ADBE).
How to read an index?
Each stock market index has its own way of calculation, but the main factor is the market capitalization of each company in the index. This is calculated by multiplying the day’s value of the stock on the corresponding stock exchange by the total number of shares on the market.
Firms listed on the stock exchange are required to submit a balance sheet of their composition. Such a report is due every three or six months, as appropriate.
Reading a stock market index also requires analyzing its changes over time. New indexes always start with a fixed value based on the prices of the securities on their starting date, but not all of them follow this method. Therefore, it can be a source of misunderstanding.
If one index scores 500 points in one day, while another only scores 20, it might appear that the former outperformed the latter. But, if the former started the day at 30,000 points and the latter at 300, it can be deduced that, in percentage terms, the gains for the latter were more significant.
The main stock market indexes
Among the main stock market indexes in the United States is the Dow Jones Industrial Average, better known as Dow Jones, made up of 30 companies. Likewise, the S&P 500, includes 500 of the largest companies on the New York Stock Exchange. Finally, we should not forget the Nasdaq 100, which unites 100 of the largest non-financial firms.
On the other hand, the most important indices in Europe are the Eurostoxx 50, which includes the 50 most important companies in the Eurozone. Also, the DAX 30, the main German index containing the most important companies of the Frankfurt Stock Exchange; the FTSE 100 of the London Stock Exchange; the CAC 40 of the Paris Stock Exchange; and the IBEX 35, of the Spanish stock exchange.
In Asia, the main stock market indexes are the Nikkei 225, made up of the 225 most important companies on the Tokyo Stock Exchange. There is also the SSE Composite Index, seen as the most solid in China, made up of the most relevant companies on the Shanghai Stock Exchange. The Hang Seung Index in Hong Kong and the KOSPI in South Korea are also worth mentioning.
In the Latin American region, there is the IPC, which contains the 35 most important companies on the Mexican Stock Exchange (BMV). At least a third of them belong to the capital of magnate Carlos Slim.
Another is the Bovespa, made up of the 50 most important companies of the Sao Paulo stock exchange; the Merval of Argentina; the IPSA of Chile; the MSCI COLCAP of Colombia; the IBC of Caracas, made up of 6 Venezuelan companies.
There are also other types of global stock market indexes such as the MSCI Latin America, which includes the 137 most important companies in Brazil, Chile, Colombia, Mexico and Peru.
There is also the MSCI World, which includes 1,600 companies from 23 developed countries; the MSCI Emerging Markets made up of more than 800 companies from developing countries; and the S&P Global 100, made up of the 100 most powerful multinational companies in the world.