Broker Check

What is "The Market" Anyway?

July 27, 2020
You’ll notice that our weekly updates discuss the performance of the “market” or the “markets.” But what exactly is the “market”? 
When discussing investment returns, the most commonly referenced markets are the Dow Jones Industrial Average (DJIA), the Standard & Poor’s (S&P) 500 Index and the NASDAQ Composite Index. Each of these is simply a measurement of the performance of a number of particular stocks.   
The Dow Jones is the most commonly quoted market – in fact, if you hear a reference to “The Market” it is likely the Dow Jones. In actuality, the Dow only tracks the performance of 30 individual stocks. However, these happen to be the largest and most influential companies in the United States. Names include Apple, Coca Cola, Home Depot and Nike. While useful in indicating the trend in trading, the Dow only represents a tiny fraction of publicly traded companies.
The S&P 500 is an index made up of 500 large U.S. based companies from many different sectors. Because it includes a large number of individual stocks and encompasses a variety of market sectors, many investment professionals rely on the S&P 500 for market data.
The NASDAQ is an index made up of over 3,000 different stocks. However, most of these companies are technology or internet related (although there are companies from other sectors as well.) Its concentration of technology companies makes the NASDAQ an accurate indicator for the overall tech sector.
The Dow, S&P and NASDAQ can all be useful measurements of market performance. Together they can help illustrate the trend of the overall markets.
The Dow Jones Industrial Average is a widely watched index of 30 American stocks thought to represent the pulse of the American economy and markets. S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. The NASDAQ is an index that tracks the cumulative results on a market capitalization basis of all stocks trading in the NASDAQ system. Investors cannot invest directly in an index. Past performance is no guarantee of future results.