A Beginner's Guide to Understanding Stock Market News

What do the Dow, the S&P 500 and the Nasdaq actually measure? A plain-English guide to the numbers you hear in every market report.

"The Dow fell 400 points." "The S&P 500 hit a record high." "Tech stocks dragged the Nasdaq lower." Market headlines are everywhere, but they can be confusing if no one has explained what the numbers mean. This guide covers the basics.

The three indexes you hear about most

Dow Jones Industrial Average

The Dow tracks 30 large, well-known U.S. companies. It is price-weighted, meaning companies with higher share prices have a bigger effect on the index, regardless of the company's overall size. It is the oldest of the major indexes and is still widely quoted, but it represents only a small slice of the market.

S&P 500

The S&P 500 tracks about 500 of the largest publicly traded U.S. companies. It is weighted by market value, so the biggest companies have the most influence. Because it covers so much of the market, many professionals consider it the best single snapshot of how U.S. stocks are doing, and many retirement funds track it.

Nasdaq Composite

The Nasdaq Composite includes the thousands of stocks listed on the Nasdaq exchange. It is heavily weighted toward technology companies, so it often moves more sharply when tech stocks rise or fall.

You may also hear about the Russell 2000, which tracks smaller companies and is often used as a gauge of how smaller U.S. businesses are faring.

Points vs. percent

A drop of "400 points" sounds dramatic, but what matters is the percentage. Because the Dow's value is so large today, a 400-point move is a much smaller percentage than it would have been decades ago. Always look for the percent change to understand how big a move really was.

Common market terms

• Bull market: a sustained rise, often defined as a 20% gain from a recent low.
• Bear market: a decline of 20% or more from a recent high.
• Correction: a drop of 10% or more from a recent high.
• Record high / all-time high: the highest closing level ever reached.
• Volatility: how sharply prices swing. The VIX, often called the "fear gauge," measures expected volatility in the S&P 500.

What moves the market

Company earnings. Four times a year, public companies report results during "earnings season." Investors focus on earnings per share (EPS), revenue and "guidance" — what management expects next. A company can report a profit and still see its stock fall if results miss expectations.

Economic data. Key government reports include the monthly jobs report from the Bureau of Labor Statistics (usually the first Friday of the month), the monthly Consumer Price Index (CPI) for inflation, and quarterly Gross Domestic Product (GDP) figures from the Bureau of Economic Analysis.

The Federal Reserve. Interest rate decisions affect borrowing costs for companies and consumers, so markets watch every Fed meeting closely. (See our guide on how the Fed affects your wallet.)

Treasury yields. The yield on the 10-year Treasury note influences mortgage rates and how investors value stocks.

Keeping perspective

Daily market moves make headlines, but they are often driven by short-term news and emotion. Over long periods, broad indexes have risen, though with many painful drops along the way and no guarantee about the future. If you invest for retirement, a single day's headline is rarely a reason to change your plan.

This guide is for educational purposes only and is not investment advice. Consider speaking with a licensed financial professional about your situation.

Common questions

What does it mean when "the market" is up?

When reporters say "the market" rose, they usually mean the major indexes — most often the S&P 500 — closed higher than the day before. It doesn't mean every stock went up; on any given day, some rise and some fall.

What are futures and pre-market trading?

Before the regular trading session opens at 9:30 a.m. Eastern time, investors trade stock index futures and some stocks in pre-market sessions. Morning news reports often cite futures as an early hint of how stocks may open, but the regular session can move very differently.

How can ordinary investors follow the market without stress?

Many long-term investors check their accounts only occasionally and focus on things they can control: how much they save, keeping costs low, diversifying, and having an emergency fund so they never have to sell investments in a downturn. For that last step, see our guide on how much to keep in an emergency fund.