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Guide to Understanding Stock Market News Reports

written by: Brian Nelson•edited by: Rebecca Scudder•updated: 6/29/2011

Whether you are a seasoned investor with a million dollars in the stock market, or a relatively new investor with a few hundred bucks in an IRA or in a 401(k), chances are you at least occasionally read news stories about stocks or the stock market. This guide will help you understand more than jus

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    Stock Market News Stories

    It seems that every news story about the stock market has to include certain things regardless of what the main story is actually about. Various phrases get thrown around like everyone knows what they mean, when in reality, most people except finance professionals have only a vague understanding of those terms. Ironically, those are the same people who likely already know what happened in the stock market today, and are therefore probably not watching or reading those stories.

    The most common phrase, of course, is that the market was either up, or the market was down, but what does that really mean?

    Most mainstream news outlets rely on the Dow Jones Industrial Average, usually referred to only as “Dow", or “Dow Jones", in making the blanket statement that the market was either up or down. That doesn’t mean that any particular stock, industry, or sector was up or down, but rather that the Dow Jones Industrial average was either higher or lower than it was yesterday (or the previous trading day in the case of Monday’s and holidays).

    Some investing focused media outlets will substitute the S&P 500 index for the Dow Jones Industrial Average when they announce which direction the market went.

    Occasionally, you will hear the direction of the stock market referred to as “mixed." Generally, that means that out of the three commonly reported metrics, the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ Composite index, they did not all match directions. The most common occurrence is that the Dow and S&P 500 moved in the same direction while the NASDAQ did not. This is because the NASDAQ contains a larger percentage of volatile companies, particularly technology companies that may move in a different direction than the overall market in response to news viewed as having more or less affect on those particular stocks.

    To give an indication of how much the stock market moved, that is how far down or how far up the markets are, news articles will also relate the amount by which the 3 common indexes were up or down. The stock market indexes are generally denominated in “points." Those points do not necessarily correlate on a one-to-one basis with dollars. In other words, when the news anchor says, “The Dow was up 300 points," that does not mean that the average overall value of the stocks in the Dow Jones Industrial Average increased by $300 that day.

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    What Is Stock Market Volume

    Another frequently referenced concept is trading volume. This is likely accompanied by a comment that trading volume was light, or trading volume was heavy.

    Essentially, the definition of volume the news casters are using is the total number of shares traded on the various exchanges during the day. A heavy volume day simply means that more shares were traded on that day than on average, while a light volume day means the opposite. The volume of the day has no effect on the overall numbers, nor directly on the price per share of the stocks themselves. Rather, the volume is an indicator of how many people were trading on a particular day.

    Theoretically, the higher the volume, the more weight that should be given to the data from that day, while a light day might suggest that the numbers were pushed around because many traders were not participating in the markets on that day.