I’ve been meaning to write this article topic for a while. Nothing like getting a kick in the ass from Scott Jackson to pump this one out.
Let’s get started
The major US stock market indexes are a set of indices that track the performance of the US stock market. Here are the explanations of the most commonly followed indices:
- Dow Jones Industrial Average (DJIA): This index is often referred to as “the Dow” and consists of 30 large, blue-chip companies listed on the New York Stock Exchange (NYSE) and the NASDAQ. The Dow is the oldest index and tracks the performance of the US economy through the performance of these 30 companies. Most of the Dow stocks you will most likely be familiar with. Names like Coca-Cola, Disney, Apple, and Microsoft. Companies that are included in the Dow are very stable and usually considered the leader in their respective industry. When a company is admitted to the Dow it is a big deal as it is not easy and changes to the index do not happen frequently. Keep in mind this index is price-weighted. This means a certain stock could drag the entire index down. If a stock in the Dow declines by $10 in one day that single stock will be responsible for about a 70 point decline on its own. Here is a list of Dow stocks: https://www.cnbc.com/dow-30/
- S&P 500: This index tracks the performance of 500 large-cap companies listed on the NYSE or NASDAQ. The S&P 500 is considered to be a more accurate representation of the overall US stock market, as it includes a broader range of companies across different sectors. The S&P 500 is not price weighted like the Dow is, it is market capitalization (market cap) weighted. This means the bigger the market cap of a company, the more its price increase/decrease effects the S&P 500. Right now Apple (AAPL) is roughly 7% of the S&P 500 boasting a $2.5 trillion market capitalization. This means when Apple increases or decreases significantly, it will have a huge effect o n the index. Link to all S&P 500 companies: https://www.slickcharts.com/sp500
- NASDAQ Composite: This index tracks the performance of all the companies listed on the NASDAQ exchange, which is primarily made up of technology companies. The NASDAQ Composite is often used as an indicator of the performance of the technology sector. List of NASDAQ Composite: https://www.barchart.com/stocks/indices/nasdaq/nasdaq-composite
- The NASDAQ-100 Index is a stock market index composed of the largest non-financial companies listed on the NASDAQ exchange. It is often referred to as simply the “NASDAQ 100”. The index includes 100 companies, which are selected based on a combination of market capitalization, liquidity, and other factors. Unlike other indexes, the NASDAQ 100 is not limited to US-based companies, and includes companies from various countries. The NASDAQ 100 is often used as a benchmark for technology stocks, as it includes many well-known technology companies such as Apple, Amazon, Facebook, and Microsoft. However, it also includes companies from other sectors such as healthcare, consumer services, and industrials. Don’t get the NASAG Composite and NASDAQ 100 confused. Link to NASDAQ 100: https://www.cnbc.com/nasdaq-100/
- Russell 2000: This index tracks the performance of 2,000 small-cap companies listed on the NYSE or NASDAQ. The Russell 2000 is often used as an indicator of the performance of small and mid-cap companies, which are believed to have greater potential for growth than larger companies. Link to Russell 2000: https://www.barchart.com/stocks/indices/russell/russell2000
These indexes provide investors with a snapshot of the overall performance of the US stock market and are commonly used as benchmarks for investment portfolios.
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