Glossary
Market terms in plain language: what each one means, the terms around it and the WallStreetDigest explainers that use it.
0–9
The 10-year Treasury yield is the interest rate the U.S. government pays to borrow for ten years, set by trading in the bond market rather than by the Fed. Thirty-year mortgage rates tend to follow it, which is why a rising 10-year yield usually means higher mortgage quotes.
A stock's 52-week high is its highest price over the past year. Reaching it shows strong recent demand but says nothing on its own about where the price goes next. Lists of stocks at new highs or lows are also a way to read market breadth.
A
After-hours trading runs from 4 to 8 p.m. ET, after the regular session closes. Far fewer buyers and sellers take part, which means a few large orders can move prices more than they would during the day. After-hours moves often shrink or reverse once the full market opens at 9:30 a.m.
B
A basis point is one hundredth of a percentage point. If a yield moves from 4.50% to 4.56%, it has risen 6 basis points. Interest rates use this small unit because small moves matter on large loans and deposits. The Federal Reserve usually changes its rate in steps of 25 basis points.
A bear market is a fall of at least 20% from a recent high, by common market convention. Bear markets often come with recessions, though not always. The opposite, a sustained rise, is called a bull market.
A blue chip is a large, well-known company with a long record of steady results, often one that pays a dividend. The name comes from the highest-value chip in poker. Blue chips fill indexes such as the Dow Jones Industrial Average, though a long record is no guarantee of future results.
Market breadth measures how many stocks rose compared with how many fell. An index can climb on the strength of a few large companies while most stocks decline; breadth shows whether a move was broad or narrow, which an index level alone can hide.
A bull market is a long stretch of rising prices in a market such as stocks, often defined as a gain of at least 20% from a recent low. The label is applied after the fact and says nothing about how long the rise will last. The opposite, a fall of at least 20% from a recent high, is a bear market.
A buyback is a company purchasing its own shares on the market. With fewer shares outstanding, each remaining share represents a slightly bigger slice of the company, which can lift profit per share even when total profit is flat. Companies pay for buybacks with cash or borrowing.
C
A capital gain is the profit from selling an asset, such as a stock or a home, for more than its purchase price; a sale for less is a capital loss. In the U.S., gains on assets held for more than a year are usually taxed at lower rates than gains on assets held for a year or less.
Compound interest is interest earned on both the original sum and the interest already added to it. Each period's interest joins the balance that earns interest in the next period, so growth speeds up over time. At 5% a year, $1,000 grows to about $1,629 in 10 years with yearly compounding, against $1,500 with simple interest.
The consensus is the average of the forecasts published by the analysts who cover a company or an economic report. It works as a bar, not a prediction: a result above it is called a beat, one below it a miss, and the market reaction often depends on the size of the gap.
Core inflation is inflation measured without food and energy prices, which swing with weather, harvests and oil markets. Removing them shows the underlying trend more clearly, which is why the Federal Reserve watches core measures closely. Headline inflation is the version households feel at the store and the pump.
A correction is a fall of at least 10% from a recent high in an index or a stock, by common market convention. Corrections in the S&P 500 have happened many times and do not always lead to a bear market. The term describes the size of a decline, not its cause.
A bond's coupon is the interest it pays each year, set as a percentage of its face value when the bond is issued. A bond with a face value of $1,000 and a 4% coupon pays $40 a year, often in two payments of $20. The coupon stays fixed for most bonds; the bond's yield changes as its price moves in the market.
The Consumer Price Index measures the change in prices of a basket of goods and services that households buy, from food and rent to gasoline. The Bureau of Labor Statistics publishes it monthly. The change in the index over the past year is the headline inflation rate most people hear about.
D
Diversification means spreading money across many investments, such as different companies, industries, bond types or countries, so that a loss in one holding has a smaller effect on the whole. It can reduce the ups and downs of a portfolio, but it does not prevent losses when most markets fall at the same time.
Dividend yield is a company's yearly dividend divided by its share price, written as a percentage. A $2 yearly dividend on a $50 stock is a 4% yield. Because the price moves every day, the yield moves with it, even when the dividend itself has not changed.
Dollar-cost averaging is investing a fixed amount of money on a regular schedule, such as every month, whatever the price. The same amount buys more shares when prices are low and fewer when they are high. Many workplace retirement plans work this way through payroll contributions. It spreads purchases over time but does not guarantee a profit or protect against losses.
The Dow Jones Industrial Average tracks 30 large U.S. companies. It dates to 1896 and is weighted by share price rather than company size: a stock with a high price moves it more than a larger company with a lower price. Because it holds only 30 stocks, it is a narrower gauge than the S&P 500.
A drawdown is the decline from a peak to a later low, measured in percent. A fund that rose to $100 and then fell to $85 had a 15% drawdown. It shows how much an investment lost from its high point before recovering, a common way to describe risk.
E
Earnings per share is a company's profit for a period divided by the number of its shares. It is the figure most quarterly reports are judged on: analysts publish an average forecast for it, and the stock often moves on how far the reported number lands above or below that forecast.
An exchange-traded fund is a basket of investments, often an index, that trades on an exchange like a single stock, with a price that changes throughout the day. Many ETFs track broad indexes; others hold one sector, bonds, commodities or a currency.
An expense ratio is the yearly fee a mutual fund or ETF charges, written as a percentage of the money invested. It is taken out of the fund's assets rather than billed separately, so it shows up as a slightly lower return. A ratio of 0.50% takes half of one percent a year; over decades, small differences in fees can add up to large sums.
F
The federal funds rate is the interest rate banks charge each other for overnight loans; the Federal Reserve sets a target range for it at its meetings. Rates on credit cards, savings accounts and many business loans tend to move with it within weeks.
FOMC (Federal Open Market Committee)
The Federal Open Market Committee is the Federal Reserve group that votes on interest rates. It holds eight scheduled meetings a year and announces each decision in a statement on the final day, followed by the chair's press conference. Minutes of each meeting come out about three weeks later.
Form 4 is the filing a company's officers, directors and large shareholders submit to the SEC when they buy or sell its shares, generally within two business days of the trade. The filings are public, which is how insider buying and selling become visible to everyone else.
Free cash flow is the cash a company has left after paying for its operations and its investments in equipment and facilities. It is the money available for dividends, buybacks, debt repayment or acquisitions, which is why investors watch it alongside reported profit.
G
Guidance is a company's own forecast for its coming sales, profit or other results, usually given with quarterly earnings. Investors often weigh it more heavily than the quarter just reported, because it describes the period ahead. Raising guidance is read as confidence; cutting it is read as a warning.
H
A hedge is an investment made to offset possible losses in another, much like insurance. An airline may buy fuel contracts so that rising oil prices cost it less, and a fund may buy options that gain value if its stocks fall. Hedges usually cost money or give up some gains in exchange for the protection.
I
An index fund is a mutual fund or exchange-traded fund that holds the stocks in a market index, such as the S&P 500, in the same proportions instead of picking among them. Its return tracks the index, minus a small fee. Many 401(k) plans use index funds as their core holdings.
Insider buying is when a company's executives or directors purchase its shares with their own money on the open market. They report these trades to the SEC, generally within two business days, on a Form 4. Purchases tend to get more attention than sales, which insiders make for many personal reasons.
An initial public offering is a company's first sale of shares to the public, after which the stock trades on an exchange. The company and its bankers set the offering price the night before trading begins; the first-day move shows how that price compares with demand.
L
Liquidity describes how easily an asset can be bought or sold quickly without moving its price much. Shares of large companies and Treasury bills change hands in large volumes every day and are highly liquid; a house or a thinly traded stock can take longer to sell, or may need a lower price to find a buyer.
M
Market capitalization is a company's share price multiplied by the number of its shares: what the whole company is worth at today's price. It is how companies are ranked by size, and in indexes such as the S&P 500 the largest companies by market cap carry the most weight.
N
The Nasdaq-100 tracks 100 of the largest companies listed on the Nasdaq exchange, leaving out financial companies. Technology companies make up much of it, which is why it often moves more than the S&P 500 on days driven by tech news. It is different from the broader Nasdaq Composite, which holds thousands of stocks.
O
Operating margin is operating profit divided by sales: how many cents of profit the core business keeps from each dollar of revenue before interest and taxes. A rising margin means the company is keeping more of each sale; a falling one means costs are growing faster than revenue.
P
The price-to-earnings ratio divides a stock's price by its profit per share over a year. A P/E of 20 means investors pay $20 for each $1 of yearly profit. A high P/E usually signals that investors expect faster growth. It is a comparison tool, most useful against the company's own history and its peers.
Pre-market trading runs from 4 to 9:30 a.m. ET, before the regular session opens. Like after-hours trading it is thin, which means early prices can change sharply once the opening bell brings in the full market. Companies often release results before the open, which is why pre-market moves cluster on earnings days.
A price target is one analyst's estimate of where a stock will trade in about 12 months. It is an opinion, not a forecast the market shares, and targets from different firms can be far apart. A target change is news about the analyst's view; it changes nothing about the company itself.
R
Rebalancing is adjusting a portfolio back to its intended mix of investments after market moves have shifted it. If a mix of 60% stocks and 40% bonds drifts to 70% stocks after a rally, rebalancing sells some stocks and buys bonds to restore the original weights. Some investors rebalance on a schedule, others when the mix drifts past a set limit.
A recession is a significant decline in economic activity that spreads across the economy and lasts more than a few months, showing up in jobs, income, spending and production. In the U.S., the National Bureau of Economic Research dates recessions, often months after they begin. Two straight quarters of falling GDP is a common rule of thumb, not the official test.
Revenue, or sales, is the money a company takes in from customers. Profit is what remains after costs, interest and taxes. A company can grow revenue while profit falls if costs grow faster, which is why earnings reports show both.
The rule of 72 is a shortcut for estimating how long money takes to double at a fixed yearly rate of return: 72 divided by the rate gives the approximate number of years. At 6% a year, money doubles in about 12 years; at 8%, in about 9. It is an approximation, most accurate for rates around 6% to 10%.
The Russell 2000 tracks about 2,000 smaller U.S. companies and is the standard measure of small-company stocks. Smaller companies tend to rely more on borrowing and on the U.S. economy, which is why the index often reacts more than large-company indexes to changes in interest rates and growth.
S
The S&P 500 tracks about 500 large U.S. companies, weighted by market value, which means the biggest companies move it the most. It is the most widely followed measure of the U.S. stock market and the index behind many retirement-plan funds.
Short interest is the number of a company's shares that have been sold short and not yet bought back, often shown as a percentage of the shares available to trade. A high figure means many investors are betting on a decline, which can also set up a short squeeze if the price rises.
Short selling is a bet on a falling price: the seller borrows shares, sells them, and aims to buy them back later at a lower price to return them. If the price rises instead, losses can grow without a fixed limit. A rush of short sellers buying back at once is called a short squeeze.
SPAC (special purpose acquisition company)
A special purpose acquisition company is a shell company that raises money in its own stock-market listing and then looks for a private business to buy, usually within about two years. The merger takes the private business public without a traditional IPO.
Spectrum is the range of radio frequencies that wireless networks use to carry calls and data. In the U.S. the FCC licenses it, often through auctions, and carriers pay large sums for it because more spectrum means more capacity and coverage.
A stock split divides each existing share into more shares and lowers the price per share in proportion, so the company's total value does not change. In a 2-for-1 split, a holder of 100 shares at $50 ends up with 200 shares at $25. Companies often split after a large price rise, which makes each share cheaper to buy.
T
A tariff is a tax on imported goods, paid to the government by the company that brings the goods into the country. Importers may absorb the cost, pass it on to customers through higher prices, or change suppliers, which is why tariffs can affect both profits and inflation.
U
An upgrade is an analyst raising a rating on a stock, for example from Hold to Buy; a downgrade is the reverse. Ratings compare a stock with its peers or the market. A downgrade can come with a higher price target when the analyst thinks the stock is worth more but has less room left to gain.
V
Volatility describes how much and how quickly prices swing. The VIX, calculated by Cboe from S&P 500 option prices, measures the swings investors expect over the next 30 days, and it tends to rise when stocks fall. A high reading reflects uncertainty, not a prediction of direction.
Y
A bond's yield is the yearly interest it pays as a percentage of its current price. When bond prices fall, yields rise, and the other way around. Treasury yields matter beyond bonds: the 10-year yield is a reference point for mortgage rates and for how investors value stocks.
The yield curve plots Treasury yields from short maturities, such as three months, to long ones, such as 30 years. Normally longer loans pay more. When short-term yields rise above long-term ones the curve is called inverted, a pattern that has often come before recessions, though not every time.