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What Is The Market?

Zoe Team

Sep 5, 2017

4 min read

A financial advisor reviewing a plan with two clients at a table

Key Takeaways

‘The market’ refers to an index of securities reflecting the collective performance of companies.
Market movements are often driven by sentiment rather than purely rational indicators.
Understanding market definitions helps avoid being misled by sensationalist media reports.

Frequently Asked Questions

What do analysts mean by ‘the market’?

They are typically referring to major indices that track the performance of a broad collection of stocks.

Why is media coverage often confusing?

News outlets focus on mood descriptions like ‘sad’ or ‘upbeat’ to generate clicks rather than explaining technical data.

Should investors worry about daily market ‘moods’?

No, daily fluctuations are standard market behavior and generally irrelevant to long-term financial goals.

Whenever you turn on the TV or read a newspaper you will undoubtedly see someone talking about how the “markets” are up, down, flat, upbeat, sad, or some other kind of movement or mood description.

However, what do they really mean when they are talking about the “market”? They are not talking about the local grocery store’s traffic or the overall economy. Rather, the “market” is a broad, but particular, snapshot of the investing world.

The Market Is Everyone – Kind Of

When used in a general sense, the “stock market” means the actions that the public take as a whole, through stock exchanges like the New York Stock Exchange or NASDAQ. Every buy and sell order placed by anyone, whether a small retiree or a large institutional pension fund, becomes part of the market on that day.

A stock index is a collection of a variety of stocks and can therefore serve as a good representation of that market as a whole. Certain indexes, or measurements that combine a selected variety of stocks, give a picture of how the overall market, or certain parts of it, are doing. These indexes include more famous ones such as the Dow Jones Industrial Average (DJIA) and the S&P 500, as well as lesser known ones like the Wilshire 5000.

The way the markets are moving may affect individual stock prices and provide important indicators about the economy. Similarly, the way individual stock prices move and how the economy is doing may affect the overall market itself as well.

What the Markets Are Not

Normally references to the market do not include investing activities that are not accessible to the public. These include activities such as private-equity, venture capital, and other transactions and deals that take place privately between only selected actors.

How Markets Move

When someone says “the market’s up”, they mean that on aggregate all the individual stock moves, both up and down, net a positive move for major indexes. Similarly, when someone says “the market’s down”, or “flat”, that is a description of the overall sum of the individual stock movements.

It is important to note that an individual stock’s movement does not have to coincide with the market’s direction on any given day. Although in some cases, a big move in large company stocks can sometimes result in the entire market being up or down that day. For example, Apple is a large component of the Dow Jones Industrial Average.

If Apple were to post expectation-beating earnings and soar several percentage points, the entire Dow Jones Industrial Average might show a sizable increase on that day, even if all the other stocks that are part of the Dow are not moving so positively.

Markets On a Broader Scale

Now, stocks are not the only financial asset that one can trade. The broader term “securities” is used for any financial asset that is tradable such as stocks, bank notes, bonds and derivatives. So depending on the kind of securities one is talking about, markets can also have more specialized meanings. For example, if someone invests largely in bonds, then when they refer to the “market” they might be talking specifically about the Treasury Bond Market or an index like the Barclays Capital U.S. Aggregate Bond Index on that day.

Why should I care about Markets?

If you are investing in individual stocks then following the overall market moves daily or weekly gives you a way to see how you fared relative to the broader picture.

If you are investing with longer-term goals in mind, like retirement or college for your kids, then the day to day market moves should not matter to you much. Having said that, the long-term market’s performance IS important to you as it is one of the factors that will determine how quickly you will be able to reach your goals. If the S&P 500 delivers 5% total returns per year for the next 10 years vs. the annual 7.5% we saw the last decade, it would mean you would need to save more each year in order to achieve the same outcome.

How to Follow Markets

You can follow the main market indexes on news organization or financial websites, like Bloomberg or Yahoo Finance.

*All investing is subject to risk, including the possible loss of the money you invest.

**The projections or other information generated by Zoe Financial, Inc. regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

The Market Is Everyone – Kind Of

What the Markets Are Not

How Markets Move

Markets On a Broader Scale

Why should I care about Markets?

If you are investing in individual stocks then following the overall market moves daily or weekly gives you a way to see how you fared relative to the broader picture.

How to Follow Markets

You can follow the main market indexes on news organization or financial websites, like Bloomberg or Yahoo Finance.

*All investing is subject to risk, including the possible loss of the money you invest.

Disclosures: Zoe Financial, Inc. ("Zoe Financial") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Zoe Financial provides investment advisory services and access to independent registered investment advisers through its platform. The information provided by Zoe Financial is for educational and informational purposes only and should not be construed as personalized investment advice or as an offer to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Clients should consult with their own financial, tax, or legal professionals before making any investment decisions. The material presented by Zoe Financial is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Material presented has been gathered from sources believed to be reliable, however Adviser cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Past performance is no guarantee of future results. Zoe Financial does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. SEC Registration does not constitute an endorsement of Zoe Financial by the SEC nor does it indicate that Zoe Financial has attained a particular level of skill or ability. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be appropriate for all clients. Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Lower expenses do not guarantee better investment performance. Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements.

Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.

The information in the visuals above is for illustrative purposes only and does not represent an actual user's account, balance, or return. Zoe Financial does not provide tax or legal advice.

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