On CNBC in the mornings before the markets open they show a visual for the Fair Value of the S&P 500, DJIA and Nasdaq. It has two numbers for each of these showing an up or down number. Can anyone explain how to interpret what these mean?
Fair value is basically an assumption of what the the stock index future should be priced given interest rates, expected dividends, time until the contract expires and the current index level. The stock market’s expected opening change is calculated by: futures – fair value If S&P 500 futures are 1310 and fair value is 1300 it indicates that the market will open 10 points higher. CNBC displays it as the point change, for example if futures are -3 and fair value is -7, you would do the math to calculate a 4 point gain. Here are two useful links that explain fair value: http://www.cme.com/trading/prd/equity/fairvalue.html http://www.cme.com/trading/prd/equity/fairvaluefaq.html
A good article from today’s FT on Fair Value Accounting: http://www.ft.com/cms/s/0/72524314-6806-11dd-8d3b-0000779fd18c.html