Dow Jones and S&P 500 are names you hear on the nightly news and see written all over financial publications. In the United States, quite a few different stock indexes represent different market sectors, but the ones we know best are the Dow and S&P. They both index the largest American stocks and have plenty of overlap, but they are not the same.
The Dow, Dow Jones, Dow Jones Industrial Average, DIA, Dow Jones Index, Dow 30 and DJIA are all names for the benchmark of stocks that comprises some of the top publicly traded American companies. In 1896, Charles Dow categorized an index of 12 companies, and it remains the oldest continuing American market index. Only 30 stocks make up the index today, but as industry leaders, they are seen as a bellwether of how the broader market is performing.
Details of the Dow
Of the original dozen, only General Electric remains a member of the index today. While the index once was made up only of industrial companies, the 30 current stocks represent a range of businesses. Editors of “The Wall Street Journal” select the members. Though it has been around more than a century, the Dow works to stay relevant and occasionally replaces the companies on the list based on current market conditions. Examples of this are the 1999 replacement of Sears Roebuck and Union Carbide with Microsoft and Home Depot and the 2004 replacement of Eastman Kodak and International Paper with Pfizer and Verizon.
The S & P 500
The Standard & Poor’s, or S&P, 500 index was first published in 1957 and is still recognized as one of the best indicators of the large-cap U.S. equities market. It is weighted by market capitalization and designed to be representative of the broad domestic economy. The index comprises 500 leading companies from a wide range of industries, and it captures 75 percent of the American stock market. Many of the companies on the list are well-known names, like Exxon, Johnson & Johnson and Apple. The companies listed on the Dow Jones index are also part of the S&P 500.
Though the S&P and Dow are the best-known names, they are not the only American indexes. The Wilshire 5000 tracks the entire stock market and includes those stocks on the S&P and Dow. The Russell 2000 is an index of 2,000 smaller company stocks. There are various indexes that track stocks on the NASDAQ, a stock exchange that trades technology stocks. Some NASDAQ stocks are also part of the Dow Jones and S&P 500. What the Dow and S&P are to Americans, the Hang Sen is to the Chinese, the FTSE is to the British and the Nikkei is to the Japanese. Those indexes are relevant to anyone with an interest in American stocks because the shrinking globe is so intertwined that often when an index falls in one part of the world, the others follow suit.
Annabella Gualdoni has written newsletters and reports for corporations and nonprofits since 1994. She is a real estate professional and also teaches subjects including international cooking and travel, dating/relationships and personal finance. Gualdoni has a Bachelor of Arts in international development from University of California, Berkeley, a Master of Arts in international relations from Boston University, and a Juris Doctor from Boston College Law School.