What Are the S&P 500, NASDAQ and Dow Jones?
What Are These and Why Should You Care?
The S&P 500, NASDAQ, Dow Jones, Russell, and Wilshire are examples of a market index. An index provides a summary of the market by tracking some top stocks in that market. It tries to provide a snapshot of where the overall market is headed.
Indexes don’t necessarily track every single stock. Some indexes try to represent small, medium, and large companies, while others represent only the largest companies.
Journalist Charles Dow created the first index in 1896 by averaging the stock prices of the top 12 publicly traded companies. By doing this, he found he could trace the movement of the overall market, including the general movement of stocks not included in his index.
The S&P 500
This index tracks 500 large U.S. companies across a wide span of industries and sectors. The stocks in the S&P 500 represent roughly 70% of all publicly traded stocks. “S&P” stands for the market research firm Standards and Poor’s.
Companies can be listed in more than one index, and some of the largest companies in the S&P 500 are also in the Dow Jones Industrial Average.
The Dow Jones Industrial Average (DJIA)
Named after Charles Dow, this index tracks the 30 largest U.S. companies. This means it represents “large-cap” companies, which is the industry term for very big companies like Johnson & Johnson, McDonald's, and Coca-Cola.
Although the companies within the Dow Jones represent only about 25% of all stocks, the DJIA is widely accepted as the leading indicator of market health.
The Wilshire 5000
This index represents up to 5,000 companies of all shapes and sizes, from gigantic corporations to the smallest of small companies.
The Wilshire 5000 is often called the “total market index.” Despite how representative this index is, it oddly isn’t nearly as popular or as followed as the DJIA and S&P 500.
The Russell 2000
The Dow Jones focuses on large companies, but the Russell 2000 does the opposite: It tracks only the smallest companies. This index follows 2,000 of the smallest players in the market.
If you think that 2,000 companies are too small a sample size, and you’re searching for a larger, more representative snapshot of how small-cap companies are faring, you can also check out its sister index, the Russell 3000.
This refers to an index and a trading exchange (where people go to buy stocks). The most famous exchange is the New York Stock Exchange. But almost as famous is the Nasdaq Exchange, where the stocks people trade tend to be tech companies, like Apple and Google.
Smaller companies are traded on the Nasdaq too, like Angie’s List (the website that offers peer-to-peer reviews of home-repair contractors) and 1-800-Flowers.
The Nasdaq also trades some banking companies, airline companies like Spirit Airlines, and even a few non-tech businesses like Starbucks and shoe company Steve Madden.
In other words, there’s no law that says only high-tech companies are traded on the Nasdaq Exchange. The Nasdaq just generally tends to hold an abundance of tech companies.
The Nasdaq market index, known as the Nasdaq Composite, tracks the roughly 3,000 companies that are traded on the Nasdaq Exchange. This is unusual because no other exchange has its own popular index. There is no New York Stock Exchange Composite.
The Nasdaq Composite has grown popular because it's commonly accepted as a shorthand indicator of how tech-sector and innovative companies, big and small, are faring.