If you read or listen to the popular media, you might get the impression that the Dow Jones Industrial Average, usually just the Dow, is the pulse of the market.

First, let’s look at what an index number represents. Although there are different ways to calculate index numbers, it is important to remember the numbers represent a change from an original or base value.

The number is not important. What is important is the percent change over time. This movement up or down gives you an idea of how the index is performing. Is the Dow up or down? The index is calculated “on the fly" during trading to give investors a sense of direction to the market it represents.

Notice, the index reflects “the market it represents,” not “the market.”

Most stock indexes, even those quoted as representing the total market, only reflect a portion of the actual market.

Here are the most popular indexes and the markets they reflect.

The Dow Jones Industrial Average is the oldest and most widely known index.

The S&P 500 is the most frequently used index by financial professionals as a representative of the “market.” It includes 500 of the most widely traded stocks and leans towards the larger companies.

The Nasdaq Stock Market Composite is composed of all the stocks on the Nasdaq market – more than 5,000.

Indexes provide useful information including:

• show trends and changes in investing patterns.

• give us snapshots,

• provide a yardstick for comparison.