For most people, I’m guessing that only time they interact with the stock market is when they’re at the airport or some other public place, and see the tickers go by. You hear the phrases, things like “Markets are down today”, or “Stocks really took a hit”, or maybe even “Dow’s up 200 points”. But did you know that there are people, who when they hear those words, actually know what those things mean?
A stock market is a place to buy and sell stock, as well as other financial assets. Stock, as discussed in my previous article, is a piece of a company. Historically, people bought and sold paper stocks from one another, so there had to be several locations to do so. In the US, there were stock exchanges in New York, Chicago, and San Francisco. These and other locations were known as regional stock exchanges. As markets became more digitized, the need for multiple physical locations lessened. Today, when we refer to “the stock market” in the US, we’re primarily talking about the New York Stock Exchange, or NYSE. Last time I went by the building that previously housed the San Francisco Stock Exchange, it was an Equinox gym.
The NYSE was founded in 1972 (according to Wikipedia), 277 years ago. Far younger by comparison is the other main US stock exchange, known as the NASDAQ, founded in 1971. Companies choose to be part of (“traded on”) either the NYSE or the NASDAQ. Most of America’s largest companies are listed on the NYSE, while the NASDAQ is known for attracting tech companies, especially during the dot-com bubble.
“But wait,” you might be asking, “I thought the Dow was the stock market?”
The Dow, as it turns out, is actually only a piece of the market. The Dow, short for Dow Jones Industrial Average, is a listing of 30 NYSE companies. That’s right, only 30 companies make up the Dow. It’s intended to be reflective of the 30 largest companies in the US, which historically were industrial, or manufacturing companies. Today the Dow includes a variety of companies, including Apple. The idea is that if you know how the 30 largest companies are doing, then you know how the market as a whole is performing.
Some people argue that looking at only 30 companies isn’t enough, as there are currently 2,400 companies listed on the NYSE and roughly 3,500 listed on the NASDAQ. Thus, the S&P 500 was born. The S&P 500 Index (also known as the S&P), is a listing of 500 companies that historically was prepared by a company called Standard & Poor’s, with the aim of evaluating the overall health of the stock market.
To conclude, there are many stock markets around the world. The NYSE is the largest, and the NASDAQ is the third largest, after Japan’s Tokyo Stock Exchange (TSE). While they were originally places to buy and sell stocks, they are now places to trade a variety of financial assets including bonds, commodities such as gold or oil, and even mortgages. Stock markets are generally considered to be an indicator of the health of the economy in their country or region. However, economists look at a variety of factors including GDP, growth rates, unemployment rates, and housing costs to determine the health of the economy. In short, in defining what the stock market is, I find it important to note the stock market is not equilavent to the economy.
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