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On Wall Street there are three big names when it comes to stock indices, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite. But what are the differences between the three? What about the performance of the Dow Jones vs S&P 500 vs Nasdaq Composite? What even is a stock market index in the first place? Keep reading to find out.

US Stock Indices

What Is a Stock Market Index?

A stock market index is an index composed of a basket of stocks which represents and measures the performance of a stock market, or a subsection of a stock market.

Stock indices derive their value from the value of their underlying stocks, which are often weighted according to their market capitalisation, although some indices use alternative weighting methods.

Although there are thousands of stock market indices in the US, the S&P 500, Nasdaq Composite and Dow Jones Industrial Average are the three most famous and most widely followed. In the following sections, we will take a closer look at each one.

The Dow Jones Industrial Average

The Dow Jones industrial Average - often referred to as the DJIA, the Dow Jones or simply the Dow – is composed of 30 public, blue-chip companies listed on the New York Stock Exchange (NYSE) and the Nasdaq.

The Dow Jones takes its name from Charles Dow, who created the stock index in 1896 to serve as a gauge for the wider US economy, and his business associate Edward Jones.

Unlike many stock indices, the Dow is price-weighted, meaning that stocks are weighted in the index according to their share price. The total value of the index is calculated by the sum of its component share prices divided by the Dow Divisor, a figure which is amended anytime a constituent company undertakes a stock split.

Dow Jones Industrial Average Chart
Depicted: Admirals MetaTrader 5 - Dow Jones Industrial Average Weekly Chart. Date Range: 26 February 2017 - 17 August 2023. Date Captured: 17 August 2023. Past performance is not a reliable indicator of future results.

Dow Jones Components

The table below shows the 30 companies which make up the Dow Jones Industrial Average at the time of writing.

Dow Jones Constituents
3M Co (MMM) American Express Co (AXP) Amgen Inc (AMGN) Apple Inc (AAPL) Boeing Co (BA)
Caterpillar Inc (CAT) Chevron Corp (CVX) Cisco Systems Inc (CSCO) Coca-Cola Co (KO) Dow Inc (DOW)
Goldman Sachs Group Inc (GS) Home Depot Inc (HD) Honeywell International Inc (HON) IBM (IBM) Intel (INTC)
Johnson & Johnson (JNJ) JP Morgan Chase & Co (JPM) McDonald’s Corp (MCD) Merck & Co Inc (MRK) Microsoft Corp (MSFT)
Nike Inc (NKE) Procter & Gamble Co (PG) Salesforce Inc (CRM) Travelers Companies Inc (TRV)  UnitedHealth Group Inc (UNH)
Verizon Communications Inc (VZ) Visa Inc (V) Walgreens Boots Alliance Inc (WBA) Walmart Inc (WMT) Walt Disney Co (DIS)

The S&P 500

The Standard & Poor’s 500 Index, usually referred to simply as the S&P 500, is composed of 500 of the largest listed companies in the US by market capitalisation. Unlike the Dow, components of the S&P 500 are weighted according to their free-float market capitalisation. This means that only free-float shares - in other words, shares which are publicly traded – are considered when calculating each companies weighting within the index.

The S&P 500 was introduced in 1957 by credit rating agency Standard & Poor’s. Its total market capitalisation represents roughly 80% that of the entire US stock market and, consequently, is often used as a benchmark for US equities.

SP500 Weekly Chart
Depicted: Admirals MetaTrader 5 – S&P 500 Weekly Chart. Date Range: 17 February 2023 - 17 August 2023. Date Captured: 17 August 2023. Past performance is not a reliable indicator of future results.

S&P 500 Constituents

The table below shows the top 10 S&P 500 companies by index weight, as of 31 July 2023.

Top 10 S&P 500 Companies
Apple Inc (AAPL)
Microsoft Corp (MSFT) Inc (AMZN)
Nvidia Corp (NVDA)
Alphabet Inc A (GOOGL)
Tesla, Inc (TSLA)
Meta Platforms (META)
Alphabet Inc C (GOOG)
Berkshire Hathaway (BRK.B)
UnitedHealth Group Inc (UNH)

Due to the size of these stocks, and the manner in which weightings are assigned, despite there being 490 other companies included in the S&P 500, these 10 account for approximately 30% of the index’s total value.

Consequently, any changes in the share prices of the above companies can have a significant impact on the wider S&P 500.

The Nasdaq Composite Index

The Nasdaq Composite Index, often referred to simply as the Nasdaq, is a stock index which is composed of more than 3,000 stocks that are listed on the Nasdaq Stock Exchange. Constituents are weighted by their market capitalisation and include companies which are based outside of the US.

Despite the vast number of companies included in the index, the Nasdaq is heavily weighted towards technology stocks and is consequently typically used as a bellwether for the technology sector.

Nasdaq Weekly Chart
Depicted: TradingView - Nasdaq Composite Index Weekly Chart. Date Range: 19 June 2017 - 22 August 2023. Date Captured: 23 August 2023. Past performance is not a reliable indicator of future results.

Nasdaq Constituents

The table below shows the top ten Nasdaq Composite constituents by index weighting, as of 30 June 2023. Between them, these 10 stocks account for more than half of the entire value of the Nasdaq Composite.

Top Ten Nasdaq Composite Components
Apple Inc (AAPL)
Microsoft Corp (MSFT) Inc (AMZN)
Nvidia Corp (NVDA)
Tesla, Inc (TSLA)
Alphabet Inc A (GOOGL)
Alphabet Inc C (GOOG)
Meta Platforms (META)
Broadcom Inc. (AVGO)
PepsiCo Inc (PEP)

Dow Jones vs S&P 500 vs Nasdaq Composite

Now we know more about these top US stock indices, let’s take a look at how they have performed in recent years. The table below shows the total returns of the Dow Jones vs S&P 500 vs Nasdaq Composite in each of the last five calendar years.

  2022 2021 2020 2019 2018
Dow Jones -6.86% 20.95% 9.72% 25.34% -3.48%
S&P 500 -18.51% 28.16% 17.75% 30.70% -4.94%
Nasdaq Composite -32.54% 22.18% 44.92% 36.69% -2.84%

Unsurprisingly, given they are all reflective of the US economy, the indices tend to follow the same trajectory. There also appears to be a general theme repeating itself, in years of gains, the Dow’s gains are more modest than its rivals.

However, in the two years where the main US stock indices recorded losses, the Dow’s performance is more competitive. In 2022, as the S&P 500 and the Nasdaq Composite recorded heavy losses, the Dow’s loss was far more muted. Similarly, in 2018, whilst the Dow’s losses were deeper than the Nasdaq, they were shallower than the S&P 500.

Perhaps given the composition of the indices, this is not terribly surprising. The Dow Jones is composed of 30 large, well-established companies, some of which operate in fairly defensive industries. Conversely, the Nasdaq and the S&P 500 are far larger and are both heavily skewed towards younger, more cyclical companies.

As evidenced in the above table, the Dow’s composition means that, in times of economic boom, it does not tend to enjoy the robust growth of the other two US stock indices. However, it also means that it tends to be less exposed to downside in challenging operating conditions.

When analysing long-term performance, it is better not to get too hung up on individual years. Some years are good and some are bad, but what really matters is the overall performance. The table below shows the total annualised returns for each index over the last 10 years.

  Total Annualised Return Over 10 Years
Dow Jones 11.26%
S&P 500 12.44%
Nasdaq Composite 15.93%

Data captured 15 August 2023.

Again, we see a similar story. Whilst all three indices have recorded considerable average gains, the Dow’s are the most moderate, whilst the Nasdaq’s are the highest. Given the Nasdaq is heavily skewed towards tech companies and how well this industry has performed in the last decade, this is to be expected.

Final Thoughts

US stock market indices are a useful tool for gauging the health and performance of the US stock market, or a subsection of it.

Whilst it is not possible to invest directly in a stock index, there are a number of Exchange-Traded Funds (ETFs) which are designed specifically to mirror the performance of an underlying index. These index tracking ETFs can be a good way of gaining broad exposure to the stock market in the US or elsewhere.

At Admirals, we offer the ability to invest in more than 200 ETFs, click the banner below in order to register for an account today:

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US Stock Market Indices - FAQ

What Are the Dogs of the Dow?

The Dogs of the Dow is an investment strategy in which investors buy shares in the ten highest yielding dividend stocks, known as the Dogs, in the Dow Jones Industrial Average. The strategy aims to outperform the performance of the Dow and the portfolio of Dogs is rebalanced at the beginning of each calendar year.

How Often Is the S&P 500 Rebalanced?

The S&P 500 is rebalanced every quarter, more specifically, after the market closes on the third Friday in March, June, September and December.

How Many Stocks Are in the Nasdaq Composite Index?

There are more than 3,000 stocks in the Nasdaq Composite Index.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.