Nasdaq, S&P 500 update stock lists to reflect today’s market
Nasdaq, S&P 500 update stock lists to reflect today’s market
A couple of high-profile stock indexes saw some coming and going Monday. The Nasdaq — which is heavy on tech stocks — swapped five companies, including DoorDash, into its mix of 100 listings. The S&P 500 made three changes, among them adding Uber. Both indexes also adjusted the weights assigned to different shares to better reflect the markets. This is all part of a quarterly rebalancing for the indexes, which drive a lot of the choices investors make.
Stock indexes help us get a quick read on how publicly traded corporations are doing as a whole, said Paolo Pasquariello, a professor of finance at the University of Michigan.
“Think of it as a gauge or a thermometer on the health of markets at any point in time,” he said.
That gauge is based on how dozens or hundreds of selected companies are performing.
Sam Stovall, chief investment strategist with CFRA Research, said diversification is the point. But recently, the major indexes have become more concentrated, with a handful of large companies weighted a little too heavily.
“These indexes say, ‘OK let’s avoid or reduce this concentration risk by rebalancing, trimming,'” Stovall said.
If you have money in an index fund, these changes likely mean your investment is being reshuffled, said Winnie Cisar with CreditSights. “You have a portfolio of companies that is attempting to just replicate whatever that index is,” she said.
“And little by little, that has become basically what the vast majority of us do on a daily basis,” rather than betting on individual stocks, said Pasquariello at the University of Michigan.
He said there’s a reason Americans have taken to this style of investing over the last few decades.
“Beating the market — doing better than index investing — is extremely difficult,” he said.
Funds that reflect stock indexes are cheaper to invest in and they often have provided better returns. It’s hard to argue with that, Pasquariello said.
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