A stock index is a number that condenses the prices of a group of stocks into a single value, so you can tell at a glance whether the market is "up" or "down" today without checking each stock one by one.
Major US Indexes
| Index | Number of stocks | Weighting method | What it reflects |
|---|---|---|---|
| S&P 500 | About 500 large companies | By market capitalization | The best reflection of the overall US economy |
| Nasdaq-100 | The 100 largest non-financial companies on Nasdaq | By market capitalization (with weight caps) | Technology and growth stocks |
| Nasdaq Composite | All stocks on Nasdaq (several thousand) | By market capitalization | The entire Nasdaq market |
| Dow Jones Industrial Average | 30 leading companies | By stock price | The oldest index, started in 1896 |
| Russell 2000 | About 2,000 small companies | By market capitalization | Small-cap stocks that depend on the domestic economy |
Market-Cap Weighting vs Price Weighting
- By market capitalization (S&P 500, Nasdaq): the bigger the company, the more influence it has on the index. If Nvidia or Apple moves sharply, the index moves with it.
- By price (Dow Jones): stocks with a higher price per share have more influence, regardless of how large the company is. This is a traditional method that analysts view as reflecting the market less well.
How the S&P 500 Selects Its Stocks
The S&P 500 does not automatically pick the 500 largest companies. Instead, a committee at S&P Dow Jones Indices evaluates companies against criteria such as company size, liquidity, the proportion of shares that are actually tradable, and a positive cumulative profit record. Being added to the index often lifts a stock's price because index funds must buy it.
Other Indexes Worth Knowing
- VIX, or the "fear index," is calculated from S&P 500 option prices. If the VIX spikes, it means the market is very worried.
- Sector indexes, such as technology and banking, help show which sectors money is flowing into. Read more: 11 Sectors of the Stock Market
Can You Invest in an Index?
You cannot buy an index directly, but you can buy an index fund or an ETF that tracks it. This is a popular approach for long-term investing because it spreads risk across hundreds of stocks at low fees.
Read more: Which Stocks Have the Largest Weight in the S&P 500
For education only, not investment advice. Figures change over time, so check official sources before making decisions.