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Stock indexes: the Dow, S&P 500 and Nasdaq
Dow 1896; S&P 500 1957· Concept
Fact, law or dataA rule, statute, definition or measured number.
A stock index is one number tracking the combined price of a chosen basket of stocks, such as the Dow, S&P 500 or Nasdaq Composite.
See it on the Money & Finance map →How it works
Charles Dow launched his average on May 26, 1896 with 12 stocks; the Dow now holds 30 and is price-weighted, so a $400 stock moves it more than a $40 one regardless of company size. The S&P 500 (1957) weights 500 large companies by market value. The Nasdaq Composite (1971) covers all Nasdaq-listed stocks and leans toward tech. The Russell 2000 tracks small companies. Index firms such as S&P Dow Jones Indices, FTSE Russell and MSCI license them to funds.
Why it matters
Indexes are how 'the market' is measured and how performance is judged, and index funds tracking them now hold a large share of all US stock.
Think of it like
Like a market-wide rent or cap-rate survey: one number summarizing how a whole market's properties are priced.
Facts, rules and data
Each provider publishes its methodology and members. Studies since 1986 show stocks jump when added to the S&P 500 as index funds must buy, the 'index effect'.
Debates and risks
With the 10 largest stocks about 40% of the S&P 500 in 2025, whether cap-weighted indexes still mean diversification is debated.
Inside this (1)
Connections (2)
▸Stock indexes: the Dow, S&P 500 and Nasdaq track baskets of Stocks: owning a slice of a companyFact, law or data
The connection
An index provider picks a basket of stocks and combines their prices with a weighting rule: by share price (the Dow), by market value (the S&P 500 and Nasdaq Composite) or equally. Being added matters, because index funds must then buy the stock, often lifting its price; being dropped forces selling.
When and why
From Charles Dow's 1896 average to today's providers, S&P Dow Jones Indices, FTSE Russell and MSCI, which license indexes to funds.
How we know
Published index rules and member lists; academic studies since 1986 (Shleifer; Harris and Gurel) measured the jump when a stock joins the S&P 500.
Debates and risks
Whether the rise of index funds now distorts stock prices, and why the 'index effect' on newly added stocks has shrunk in recent years.
▸The S&P 500 index is the main benchmark among Stock indexes: the Dow, S&P 500 and NasdaqFact, law or data
The connection
Among indexes, the S&P 500 is the main yardstick: it covers about 80% of US stock market value, is weighted by company size, and is what most managers are judged against. The Dow is older but has only 30 price-weighted stocks; the Nasdaq Composite tilts toward tech.
When and why
Launched by Standard & Poor's on March 4, 1957; now run by S&P Dow Jones Indices, owned mainly by S&P Global.
How we know
S&P's yearly survey counts trillions of dollars indexed to or benchmarked against it; S&P's SPIVA reports use it as the standard comparison.
Debates and risks
Whether a benchmark so concentrated in a few tech giants still represents the broad market, or an equal-weight version would serve better.