What do Indexes Measure?
Market indexes (or benchmarks) are useful tools for comparing an investment’s returns with overall market trends.
The following are popular indexes, each measuring a different segment of the market.
Dow Jones Industrial Average
This is the oldest and most well-known stock market index, made up of 30 actively traded blue-chip stocks. The Dow tends to be used as an indicator of market trends, rather than as an index against which to measure performance.
Standard & Poor’s 500-Stock Index (S&P 500)
Measures the performance of 500 widely held common stocks of large-cap U.S. companies.
The Nasdaq Composite Index is the "tech stock" index. It tracks stocks traded electronically on the Nasdaq market exchange, also called the over-the-counter market. It is a broad-based index including more than 3,000 companies, many of which are in the high-tech industry.
Russell 2000 Index
Tracks the smallest 2,000 companies out of the top 3,000 in domestic equity capitalization. It represents a cross-section of the U.S. small-cap equities market.
This index tracks stocks traded on the largest international markets (Europe, Australia and Far East).