Credit: The Dow Jones Industrial Average (DJIA) is the most watched stock index, as well as the oldest, in the United States. The S&P 500, or the Standard & Poor's 500, is a commonly followed stock index, and many consider it as one of the best representations of the U.S. stock market. But what is the difference?
Let's break down these two important stock indexes to find out.
When were the indexes introduced?
The Dow Jones was founded in 1893. The S&P first introduced itself in 1923, but it's current form began in 1957.
Who founded the indexes?
The Dow Jones was founded by journalists Charles Dow, Edward Jones, and Charles Bergstresser as part of their research into market movements. The S&P 500 was founded by Standard & Poor's Financial Services LLC, a subsidiary of the financial services company McGraw Hill Financial Inc MHFI .
What are the indexes comprised of?
The Dow Jones includes 30 of the largest companies in the U.S. across a range of industries, excluding transport and utilities. The S&P includes 500 large companies from a wide number of industries.
How does each index pick its stocks?
While the criteria for inclusion into the Dow Jones is unclear, each company is large and a leader in their industry. The components in the DJIA do not change often; it takes a significant adjustment to a company for it to be removes from the index. The companies in the S&P 500 are picked on more explicit terms. They must have a market capitalization of at least $5 billion, four consecutive quarters of profit based on total net income without extraneous items or terminate operations, at least 50% of shares held by public investors, and adequate liquidity that is measured by price and volume.
Who picks each the stocks in each index?
Editors of The Wall Street Journal , a publication owned by Dow Jones & Co, choose the stocks induced in the Dow Jones. Meanwhile, an S&P committee picks the companies comprising the S&P 500.
How is each index weighted?
The components of the Dow Jones are weighted in accordance with their prices, which means that the more expensive DJIA stocks influence the index much more than the least expensive. The S&P 500, on the other hand, is market-value weighted, meaning that each company is weighted by the actual size of the company in the market; this makes the S&P 500 less volatile than the DJIA.
Here's a look at the Dow Jones and the S&P 500 over a 10 year period:
S&P 500 Value Over Time - Trailing 10 Years | FindTheCompany
Dow Jones Industrial Average Value Over Time - Trailing 10 Years | FindTheCompany
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
