Graphic Measuring the market

A look at the major US stock indices

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Long description of the infographic

Although indices are often used as shorthands for the performance of the broader stock market, there can be significant differences in what they actually track.

Key Takeaways:

  • Stock indices provide approximations of how the broader market is performing by tracking the movements of a certain number of stocks.
  • Some indices, such as the S&P 500, aim to capture a cross-section of the economy by tracking companies across a variety of industries. Others, such as the technology-focused Nasdaq, have a narrower focus.
  • Unlike many other indices, the Dow Jones Industrial Average weights its constituents by price, meaning stocks with the highest share prices affect the index more than stocks with lower share prices.
  • The S&P 500 and the Nasdaq weight their holdings by market capitalization, meaning larger companies affect the index more than smaller companies.
  • Although movements in different US stock indices may diverge at times due to differences in their underlying constituents, in the big picture they tend to perform similarly.

The past performance of an index is not a guarantee of future results. Each index reflects an unmanaged universe of securities without any deduction for advisory fees or other expenses that would reduce actual returns. An actual investment in the securities included in the index would require an investor to incur transaction costs, which would lower the performance results. Indices are not actively managed and investors cannot invest directly in the indices. 

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