What "the market was up 1%" actually means
When the news says the market rose 1%, it usually means one index, measured from the day before. Here is what that number does and does not tell you.
"Stocks rose 1% today" is one of the most common lines in the news. It sounds simple. But it hides a few choices that are worth knowing about.
Which "market"?
There is no single number for "the market". Reporters pick an index, a list of companies turned into one number.
In the US, it is usually the S&P 500, which follows about 500 large companies. Sometimes it is the Dow or the Nasdaq. In Canada, it is usually the S&P/TSX Composite.
Different indexes can move by different amounts on the same day. One can even rise while another falls.
Up 1% from when?
The daily change is measured from the previous day's closing level to today's closing level. The close is the last value when trading ends, at 4 p.m. Eastern time for the main US and Canadian exchanges.
During the day you may see a different figure. That is the change so far, and it can still flip before the close.
A simple example
Say an index closed at 2,000 yesterday. Today it closes at 2,020. It rose 20 points, which is 1%.
Points are just the change in the index's level. The percentage is what lets you compare days, years and different indexes fairly.
Is 1% a big move?
For a broad index like the S&P 500, a 1% day is noticeable but not unusual. Moves of 2% or more get much more attention.
A 1% move in one company's shares is much less remarkable. Single stocks swing more than indexes.
What it does not tell you
- Your own money. Your account only moves 1% if you hold exactly what is in that index.
- Every company. An index can rise while most of its companies fall, if a few very large ones rise a lot.
- Dividends. Most quoted index changes leave out dividends, the cash some companies pay to shareholders.
Percentages do not cancel out
A fall and a rise of the same percentage do not bring you back to where you started.
If $100 falls 10%, you have $90. A 10% rise from $90 only gets you to $99. To get back to $100, you need a rise of about 11%.
The short version
- "The market" usually means one index, often the S&P 500 or the TSX.
- The daily change is measured from the previous day's close.
- Look at the percentage, not the points.
- A 1% move in an index does not mean your account moved 1%.
This is general information, not investment advice.
Updated