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I'm trying to understand more about financial terminology used in news reports, but I'm having a hard time understanding what is meant when someone says the following:

"NASDAQ was down X points today at the close."

Sometimes a percentage is used rather than points. What does this mean exactly? How does one quantify point? How does it relate to price (or volume)?

I've also noticed that some peope say,

"SPY lost X% in that run."

How is such a percentage computed? For example, say the S&P 500 (SPY) index drops from 133.68 to 133.32 over a time interval. How would I compute the percentage?

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As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%.

In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher).

To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ.

Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index.

Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly.

Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange.

Hope this helps!

  • Check your numbers in the first paragraph. I think you made a typo. – Chris Cudmore Apr 8 '11 at 20:01
  • @chris: Good call. – fideli Apr 8 '11 at 20:17
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I think that the general public is conditioned to think more in terms of points rather than percentages, so that 200 points is easier to fathom than the equivalent percent. We all translate internally what this means. Of course it is less precise, but it also makes for good copy in the publishing industry ("Market Down 1000 points!")

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Points are index based. Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000) This becomes your base. Each day, you recalculate the value of the index basket, and relate it to the base. So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points.

For the example given, the percentage change would be (133.32 -133.68 ) / 133.68 * 100% = -0.27%

Keep in mind that an index basket will change in composition over time. Assets are added and removed as the composition of the market changes. For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index. I'm not sure if a percentage drop in an index is really a meaningful statistic because of that. It is however, a good way of looking at an individual instrument.

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