One example is, what is the difference between the Dow, S&P 500, and the NASDAQ?
We’ve all heard these mentioned on the news, especially now – but maybe you have never been sure what they are. Good news is, the answer is simple! Each one of these is an index of stocks. They’re handy tools because they enable investors to measure performance by comparing current price levels for different segments of the market with past ones. What makes them different is what each index measures.
The Dow Jones Industrial Average tracks the performance of 30 of the most prominent companies listed on stock exchanges in America, such as Disney, Nike, Chase, and Apple. Because it only tracks 30 companies, it isn’t a great indication of how the overall stock market is doing, but the media pays close attention to it because the companies are so well known.
The S&P 500 measures the 500 largest companies listed on the American stock exchange. More than the Dow, the S&P 500 is considered a more reliable snapshot of the overall economy because it tracks so many more companies.
The NASDAQ Composite is weighted more towards technology companies.
There are other indexes used to track other companies and other indexes used in different countries, but these three are the most common in the US.
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Source: Bill Good Marketing, Accessed 3/22/23