Dow Jones vs Nasdaq vs S amp P 500 What Are the Differences?
Dow Jones vs. Nasdaq vs. S&P 500 - What Are the Differences? Skip to content
You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access Today the Dow includes 30 blue-chip companies ranging from Microsoft to Coca Cola to Disney, and the index features all industries except for utilities and transportation. These market sectors have their own separate Dow Jones indexes. The DJIA doesn’t swap in or out companies often, and the criteria remains vague. Aside from being some of the largest companies in the country, the companies are expected to be leaders in their industry. A committee meets periodically to vote on keeping or replacing members of the index. Stocks in the Dow Jones are weighted by price, so stocks with higher prices make up a greater percentage of the total index. If a $100 stock rises by $10, and a $5 stock also rises by $10, both changes are weighted equally, even though that jump in price represents a much larger leap in value for the $5 stock. The Dow offers some insight into how the nation’s largest companies are performing. But with only 30 companies, it hardly represents the U.S. stock market as a whole. The price weighting also distorts the index’s performance, as a company’s share price tells you less than its market capitalization (market cap). Take the index’s movements with a grain of salt, and consider it more of an ultra-high cap bellwether rather than a definitive statement about U.S. stock trends.
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By G Brian Davis Date November 18, 2021FEATURED PROMOTION
Wondering how “the market” did today? When American investors refer to “the market” or “the stock market,” they’re usually referring to one of the three major U.S. stock exchanges: the Dow Jones, the Nasdaq, and the S&P 500. Or all three. But these indexes represent different stocks and market segments, so you should understand the differences before investing in stocks.The Dow Jones Industrial Average
The oldest U.S. stock exchange, the Dow Jones Industrial Average — or the DJIA, Dow, or Dow Jones for short — began in 1896 as a way to track the 12 largest industrial companies of the era.You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access Today the Dow includes 30 blue-chip companies ranging from Microsoft to Coca Cola to Disney, and the index features all industries except for utilities and transportation. These market sectors have their own separate Dow Jones indexes. The DJIA doesn’t swap in or out companies often, and the criteria remains vague. Aside from being some of the largest companies in the country, the companies are expected to be leaders in their industry. A committee meets periodically to vote on keeping or replacing members of the index. Stocks in the Dow Jones are weighted by price, so stocks with higher prices make up a greater percentage of the total index. If a $100 stock rises by $10, and a $5 stock also rises by $10, both changes are weighted equally, even though that jump in price represents a much larger leap in value for the $5 stock. The Dow offers some insight into how the nation’s largest companies are performing. But with only 30 companies, it hardly represents the U.S. stock market as a whole. The price weighting also distorts the index’s performance, as a company’s share price tells you less than its market capitalization (market cap). Take the index’s movements with a grain of salt, and consider it more of an ultra-high cap bellwether rather than a definitive statement about U.S. stock trends.