What Are the Three Most Quoted U.S. Stock Indexes?

News about the daily movement of the stock market is an integral part of business newspapers. However, with hundreds of listed companies having their own daily ups and downs, it is sometimes hard to gauge the pulse of the broader market. This is where an index comes into play. Stock market indexes are a measure of the broader stock market movement. Over time, these indexes have become quintessential market benchmarks. And there are various kinds of indexes, representing different market segments.

Here’s a look at the three most quoted and tracked large-cap indexes in the U.S, as well as the exchange traded funds (ETFs) that provide an opportunity to invest in them.

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1. The Dow

Dow Jones Industrial Average (DJIA), or simply The Dow, is the oldest continuing U.S. market index. Launched in 1896, the 126-year-old index is still among the most quoted indexes. The Dow is a composition of 30 U.S. blue-chip companies based on a price-weighted methodology. The selection of stocks is not governed by quantitative rules but more by qualitative criteria. A stock typically is added if the company has an excellent reputation, demonstrates sustained growth, and is of interest to a large investor base. As a price-weighted index, the stock price is the main criteria for inclusion. The Index Committee monitors whether the highest-priced stock in the index has a price that is more than 10 times that of the lowest.

The changes to the index are made on an as-needed basis, usually governed by changes in response to corporate actions and market developments that can be made at any time. The top five sectors—information technology, healthcare, financials, consumer discretionary, and industrials—presently dominate approximately 85% of the index. The index excludes transportation and utilities. The current top ten constituents add up to 53.4%.

• UnitedHealth Group (UNH)
• Home Depot (HD)
• Goldman Sachs Group (GS)
• Microsoft (MSFT)
• Amgen (AMGN)
• Salesforce (CRM)
• Caterpillar (CAT)
• Visa (V)
• Boeing (BA)
• Honeywell (HON)

The only way to track the Dow is by investing in the SPDR Dow Jones Industrial Average ETF (DIA). Launched in 1998, the ETF has $29.45 billion as assets under management with an expense ratio of 0.16%. 

2. Nasdaq-100

Nasdaq-100 is a representation of companies that are symbolic of innovation, transformation and future growth. These companies directly and indirectly define the modern-day economy. NDX is a comparatively younger index, which was launched in 1985. It is a modified capitalization-weighted index that tracks the largest non-financial companies listed on the Nasdaq Stock Exchange.

With more than 50% allocation to technology stocks, the index gives an opportunity to invest in transformative, long-term themes such as augmented reality (AR), cloud computing, big data, mobile payments, electric vehicles (EVs), streaming services and more. In addition to technology, the index represents sectors such as consumer services, consumer goods, industrials and healthcare. In fact, companies such as Amgen (AMGN), Starbucks (SBUX) and Tesla (TSLA) have been at the forefront of innovation in industries other than technology. The value of NDX-related products currently exceeds $1 trillion. The top ten stocks of Nasdaq-100 currently add to around 52%.

• Apple (AAPL)
• Microsoft (MSFT)
• Alphabet A (GOOGL)
• Alphabet (GOOG)
• Amazon (AMZN)
• Tesla (TSLA)
• Meta Platforms (FB)
• NVIDIA (NVDA)
• ASML Holdings (ASML)
• NetEase (NETTF)

During the annual reconstitution in December, six new companies—Airbnb (ABNB), Datadog (DDOG), Fortinet (FTNT), Lucid Group (LCID), Palo Alto Networks (PANW), and Zscaler (ZS)—were added.

The most popular way to invest in Nasdaq-100 is through the 22-year-old Invesco QQQ Trust, Series 1 ETF (QQQ). Invesco QQQ is the second-most traded and one of the most liquid ETFs in the United States. It is the fifth-largest U.S. ETF with $188.18 billion as assets under management and has an expense ratio of 0.20%. Investors need to remember that QQQ is cap-weighted like its underlying index NDX, which means that companies with higher market capitalization enjoy a higher weightage in the index.

3. S&P 500

Created in 1957, S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities representing 500 companies. The S&P 500 was the first U.S. market cap-weighted stock market index. The index has companies from around 11 sectors with five sectors currently having double-digit allocations, namely information technology, healthcare, consumer discretionary, financials and communication services, which together add up to around 76% of the index. Overall, S&P 500 covers approximately 80% of available market capitalization in the U.S. and follows a float-adjusted market cap-weighted methodology.

The top ten constituents currently make up 28.4% of the portfolio.

• Apple (AAPL)
• Microsoft (MSFT)
• Amazon (AMZN)
• Alphabet A (GOOGL)
• Tesla (TSLA)
• Alphabet (GOOG)
• Meta Platforms (FB)
• NVIDIA (NVDA)
• Berkshire Hathaway (B)
• UnitedHealth Group (UNH)

With $411.55 billion as assets under management, the SPDR S&P 500 ETF (SPY) is not just the largest ETF tracking the S&P 500 index but the largest U.S. ETF. Launched in January 1993, SPY was the very first exchange-traded fund listed in the United States. The iShares Core S&P 500 ETF (IVV) is the second-largest U.S. ETF as well as the second-largest ETF tracking S&P 500 with $307.56 billion as assets under management.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. All facts and figures (such as assets under management, expense ratio, constituents) as on January 24, 2022, based on fact sheets. *YTD

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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