S&P 500, Dow, NASDAQ
2022-09-22 15:00uSMART

 

I . What are S&P 500, Dow, NASDAQ?

 

S&P 500  

 

The Standard & Poor's 500 index, also known as the S&P 500, S&P 500, or S&P 500, is an average record of the U.S. stock market dating back to 1957. It covers 500 common stocks and accounts for about 80 percent of the total market capitalization. The S&P 500 index was developed and continues to be maintained by S&P Dow Jones Indices LLC, a joint venture controlled by S&P Global Holdings. The 500 common stocks in the index(including REITs) are companies that trade multiple times on the two major stock markets in the United States, the New York stock exchange and the national securities association automated ticker system(NASDAQ). Almost all the S&P companies are among the 500 most traded stocks in the United States. This stock index is created and maintained by Standard & Poor's.

 

The S&P 500 includes more companies and more diverse industries than the Dow, so risk is more spread out and can reflect broader market changes. In addition, the S&P 500 is weighted by market capitalization, which better reflects the actual importance of a company's stock in the stock market, compared to the Dow Jones index, which is weighted by price. The S&P 500 index of large companies is followed by the S&P mid-cap 400 index of mid-cap companies and the S&P 600 small-cap index of smaller companies, adding up to the S&P 1500 composite index.

 

The S&P 500, Dow Jones Industrial Average, Nasdaq 100 and Russell 2000 are the most important stock indexes in the United States. Standard, mini and micro futures/options are available for investors to trade on each of the four major indices.

 

 

Dow Jones Industrial Average (DJIA)   

 

The Dow Jones Industrial Average (DJIA, Dow (/ˈdaʊ/)) was created by The Wall Street Journal and Dow Jones Company co-founder Charles Dow, And a stock market index named after him and his business partner, statistician Edward Jones. The Dow Jones Industrial Average is not a weighted arithmetic average and does not represent the market capitalization of its constituent companies. It is the average of the sum of the price of each share of each constituent company. Is a price-weighted measure of the stock market index of 30 famous companies listed on the American Stock Exchange.

 

Although the Dow Jones Industrial Average is one of the oldest and most frequently followed stock indexes, many professionals believe that it includes only 30 large companies and is not a good proxy for the entire U.S. stock market, compared with broader market indexes such as the S&P 500 or the Russell 3000. Also, the Dow Jones Industrial Average does not use a weighted arithmetic average.

 

Due to the effects of stock splits and other adjustments, it is currently only a weighted average of the component stock prices and does not reflect the actual market value of the component stocks.

 

The value of the index as of September 2020 is the sum of the stock prices of the companies included in the index divided by the current coefficient of about 0.152. The coefficient is changed each time a component company does a stock split so that the value of the index is not affected by the stock split.

 

The index is maintained by S&P Dow Jones Indices, which is owned by S&P Global

 

The ten components with the highest dividend yields are often referred to as the Dogs of the Dow.

 

Like all stock prices, component prices and the index itself are influenced by the performance of the companies involved and by macroeconomic factors.

 

Nasdaq Composite

 

Launched in 1971, the Nasdaq Composite Index had an initial value of 100 and includes almost all companies listed on the Nasdaq stock exchange.

 

In fact, one of the criteria for inclusion into the index is a listing on the exchange.

The Nasdaq Composite has more than 3,000 stocks as constituents and is a capitalization-weighted index, meaning that it assigns weightings based on market caps of the respective companies.

 

The composite’s performance reflects that of the exchange, which in turn is indicative of the performance of the technology sector. This is because the sector makes up roughly 50% of the overall composition of the index. The top 10 companies tracked by the index were technology giants and accounted for 46% of the overall weight of the index, according to September 2021 research.

 

As the tech industry’s stature has grown, the Nasdaq Composite’s value has surged. For example, during the dotcom bubble that engulfed tech stocks at the turn of the century, the Nasdaq Composite skyrocketed to 5,046.86 on March 9, 2000. It crashed by more than 4,000 points shortly thereafter and took 15 years to reach 5,000 again. The pandemic-induced boom in stocks once again boosted tech valuations in 2021, and the index’s value shot up, reaching an all-time high of 16,057.44 on Nov. 19, 2021.

 

II . Which Is the Best Investment: The S&P 500, the Nasdaq Composite, or the Dow?

 

Valuations of the indexes across all three sectors are highly correlated. Thus, all three generally rise or fall together. But the extent of gains or losses differs for each index. The decision to invest in a particular index depends on your strategy and goals:

 

If you want to capture gains of a broad swath of the market, then the S&P 500 is your best bet.

However, if you are interested in a safe strategy that mirrors price movements of well-established blue-chip stocks, then the Dow is a good choice.

Finally, if you would like greater exposure to the tech sector, then an investment in a Nasdaq Composite-linked product will focus your portfolio.

The choice of a particular index is not a zero-sum game, however. Several stocks are included in all three listings. This is especially true of stocks from sectors that are ascendant in the economy.

Depending on the economy and the state of the markets, the indexes produce different individual returns even as they mirror each other’s price movements. Here’s an example: In the 2010 bull market, the DJIA rose 11% vs. the 12.8% jump for the S&P 500.

 

Meanwhile, the Nasdaq Composite racked up 17% gains on the back of an excellent performance of the tech sector, which dominated stock market performance that year.

 

The higher figure for the S&P 500 in 2010 was primarily a function of a greater number of small stocks, which attract investor flows of cash during stock market booms, in the index. But the preponderance of small stocks means that the S&P 500 loses value during downturns, when investors flee to the relative safety and dividends of blue-chip names in the Dow.

 

III. Nasdaq Composite vs. S&P 500 vs. Dow Jones: An Overview

 

There are three main points of difference among the Nasdaq Composite, the S&P 500, and the Dow.

 

The first one relates to their coverage universe and the sectors that are part of the index. The Nasdaq Composite and the S&P 500 cover more companies in different sectors than the Dow does.

 

The second difference is their method of assigning weights to individual companies in their index. The Nasdaq Composite and the S&P 500 weigh their constituents based on market capitalizations (market caps), while the DJIA uses each constituent stock’s price to determine its weight in the index.

 

The final difference is the criteria used to select constituents of the respective indexes. The Dow is more value-oriented and uses a mix of quantitative and qualitative factors to determine whether a given stock should be included in its index compared to the other two.