The stock index is the statistical measurement of the value of a portfolio of the overall stock market. It is calculated from a set of the selected stocks’ prices. Normally, a change in the price of an index means a proportional change in the stocks that include in the index. Investors use the indices to evaluate the performance of the market. Here we are going to introduce 3 major U.S. stock indices.
*1 Dow Jones Industrial Average
Dow Jones index (DJI) was found in 1896 by Charles Dow and Edward Jones. It initially started with 12 companies, but now it has 30 companies. Although it does not include many companies like other indices, it covers all major sectors of U.S. economy expect the utility and transportation sectors. The chosen companies are mature and economically significant, so the returns are less volatile or risky. However, it applies the price-based weighting, which makes it less effective than other indices.
*2 Nasdaq Composite
Nasdaq index was found in 1971 by the National Association of Securities Dealers. Right now, it utilizes the weight market capitalization. It began with 50 companies, and most of the components are technology stocks. This index shows the performance of the technology industry. Overall, Nasdaq index is considered to be risky but with high growth potential.
*3 S&P 500
In 1923, S&P introduced its first stock index, and it expanded to S&P 500 in 1957. This index includes 500 companies that cover every sector in the U.S. market. It utilizes weight market capitalization, which is considered to be the most effective way to evaluate the portfolio of stocks in the market. So far, people view it as the best benchmark for large capitalization stocks.