Question

1. Explain the difference between the Dow Jones Industrial Average index, NASDAQ, and S&P 500 index. What is the current price for each and how has each changed since the start of the class? What is the current stock price of Google and Chipotle, and would you consider investing in either company? Why or why not?

Answer 1

Dow Jones Industrial Average

The DJIA is the best-known index. Started in 1896, the index consists of 30 U.S. blue-chip stocks. The name "Industrial" is largely historical, as most stocks in this index are not from manufacturing industries, but rather from all the major sectors except utilities and transportation.

The DJIA is price-weighted. This means the sum of the component stock prices is divided by a divisor. So companies with a higher share price have a larger effect on the Dow's movements.

S&P 500

The S&P 500 Index, started in 1957, is a stock market index of 500 large publicly traded American stocks. The stocks in this index are from all sectors of the economy and are selected by a committee at S&P Dow Jones Indices.

To be selected, stocks must have a market cap of $8.2 billion or more (as of 2019), have a public float of at least 50%, have positive earnings for the most recent four quarters and have adequate liquidity as measured by price and volume.

Stocks in the S&P 500 are weighted by their market value rather than their stock prices. In this way, the S&P 500 attempts to ensure that a 10% change in a $20 stock will affect the index the same way that a 10% change in a $50 stock will.

NASDAQ

The Nasdaq 100 is the youngest of the three indices having begun trading in 1985. It represents the largest non-financial companies listed on the NASDAQ exchange and is generally regarded as a technology index given the heavy weighting given to tech-based companies.

The Nasdaq 100 is based on the market capitalization of its components.

The Nasdaq 100 is broader than the Dow in sheer number of constituents, but the impact of a smaller group of stocks is even more pronounced.

The top 10 stocks in the Nasdaq 100 account for over 50% of the index, leaving 90% of the index to account for less than half of the index's value. This makes the index top-heavy and highly sensitive to price swings in a select few stocks.

Key Takeaways:-

DJIA:

• 30 U.S. stocks picked by the S&P Dow Jones Indices.
• Calculated through a method of simple mathematical averages.
• Higher-priced stocks affect the average more than lower-priced ones.

S&P 500:

• 500 U.S. stocks picked by an S&P Dow Jones Indices board.
• A wider range of sector representation.
• Calculated by giving weights to each stock according to their market value.
• Regardless of stock price, a percentage change will be reflected the same on the index.

NASDAQ:

• Both "the Dow" and the "the Nasdaq" refer to market indices
• Only the NASDAQ also refers to an exchange where investors can buy and sell stock.
• Neither one is "the market" or "the economy."
• An investor cannot trade the Dow or the NASDAQ indexes because they each represent merely a mathematical average.

Current price of:-

Dow Jones Industrial Average is 25,627.42

NASDAQ is 7,510.27

S&P 500 is 2,769.53

Google Class “A” is USD 1,141.18

Chipotle Mexican Grill, Inc. is USD 615.71

Chipotle Mexican Grill‘s new CEO, Brian Niccol, has had an upbeat start to his tenure as the company has posted strong revenue and earnings growth earlier, largely beating consensus expectations on both metrics. Sales improved by 7.9% in the first six months of FY 2018, driven by comparable sales growth of 2.8%, due to price increases, and new restaurant openings. Hence it is worth buying currently.