How the S&P 500 and Russell 2000 Indexes Differ Flashcards
market index
A market index is a hypothetical portfolio of investment holdings that represents a segment of the financial market. The calculation of the index value comes from the prices of the underlying holdings. Some indexes have values based on market-cap weighting, revenue-weighting, float-weighting, and fundamental-weighting. Weighting is a method of adjusting the individual impact of items in an index.
Investors follow different market indexes to gauge market movements. The three most popular stock indexes for tracking the performance of the U.S. market are the _________________
Dow Jones Industrial Average (DJIA), S&P 500 Index and Nasdaq Composite Index.
Market capitalization or market cap
the amount of money that investors have given to a company through the price of their shares. You find out the market cap by taking the number of outstanding shares and multiplying that number by the current price of the stock.
ex. if there were 1billion shares to trade of a company and it was trading for $10.00 a share, the market cap for that company would be 10 billion dollars.
is the aggregate market value of a company represented in dollar amount. Since it represents the “market” value of a company, it is computed based on the current market price (CMP) of its shares and the total number of outstanding shares, or the company’s “float”.
Market Cap=Price Per Share×Shares Outstanding
Market Cap=Price Per Share×Shares Outstanding
For example, if Cory’s Tequila Corp. was trading at $30 per share and had a million outstanding shares, its market capitalization would be ($30 x 1 million shares) = $30 million.
aggregate
a whole formed by combining several elements
outstanding shares
Outstanding shares refer to a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders
mega-cap
This category includes companies that have a market cap of $200 billion or higher. They are the largest publicly traded companies by market value, and typically represent the leaders of a particular industry sector or market. A limited number of companies qualify for this category. For example, as of Sept. 28, 2020, technology leader Apple Inc. (AAPL) has a market cap of $1.966 trillion, while the online retail giant Amazon.com Inc. (AMZN) stood next with $1.59 trillion.1
large cap
Large-cap - Companies in this category have a market cap between $10 billion to $200 billion. International Business Machines Corp. (IBM) has a market cap of $108.41 billion and General Electric Co. (GE) has a figure of $54.27 billion.3 4
Both mega and large-cap stocks are referred to as __________ _________________ and are considered to be relatively stable and secure. However, there is no guarantee of these companies maintaining their stable valuations as all businesses are subject to market risks. For instance, over the last one year period ending Sept. 28, 2019, the valuation of GE has tanked by almost 30 percent, while that of Apple has risen by around 105 percent.
blue chips
Mid-cap
Ranging from $2 billion to $10 billion worth of market cap, this group of companies is considered to be more volatile than the large-cap and mega-cap companies. Growth stocks represent a significant portion of the mid-caps. Some of the companies might not be industry leaders, but they may be on their way to becoming one. Juniper Networks Inc. (JNPR), with a market cap of $7.29 billion, is one.5
small-cap
Small-cap companies have a market cap between $300 million to $2 billion. While the bulk of this category is comprised of relatively young companies that may have promising growth potential, a few established old businesses which may have lost value in recent times for a variety of reasons also figure in the list. One example is Bed Bath & Beyond Inc. (BBBY) which has a market cap of 1.87 billion. 6 Track records of such companies aren’t as long as those of the mid- to mega-caps, they present the possibility of greater capital appreciation at the cost of greater risk.
micro-cap
Micro-cap - Mainly consisting of penny stocks, this category denotes companies with market capitalizations between $50 million to $300 million. For instance, a lesser-known pharma company with no marketable product and working on developing a drug for an incurable disease, or a 5-people small company working on artificial intelligence (AI)-powered robotics technology may be listed with small valuation and limited trading activity. While the upward potential of such companies is high if they succeed in hitting the bull’s eye, the downside potential is equally worse if they completely fail. Investments in such companies may not be for the faint-hearted as they do not offer the safest investment, and a great deal of research should be done before entering into such a position.
non-cap
caps, the companies having market caps below $50 million are classified as nano-caps. These companies are considered to be the riskiest lot, and the potential for gain varies widely. These stocks typically trade on the pink sheets or OTCBB.
Historical analysis reveals that mega- and large-caps often experience _____________ growth with ___________ risk, while small-caps have ____________ growth potential but come with ___________ risk.
Historical analysis reveals that mega- and large-caps often experience slower growth with lower risk, while small-caps have higher growth potential but come with higher risk.
