The Dow Jones VS S&P 500: What Is the Difference?
The Dow Jones and S&P 500 are among the most popular indexes in the world. Both are commonly used as benchmarks for the stock market’s performance and are closely monitored by investors and financial analysts. What’s the difference between them? Let’s compare!
Definitions
The Dow Jones Industrial Average, also known as the Dow, is a stock market index that tracks the performance of 30 large public US companies. It was created in 1896 by Charles Dow and Edward Jones and is one of the oldest and most widely followed stock market indices globally.
On the other hand, the S&P 500 is a stock market index that tracks the performance of 500 large publicly traded US companies. Learn more about S&P 500 in our article.
30 VS 500
While the Dow and S&P 500 can sometimes show different trends and performance, the Dow is considered a narrower measure of the stock market since it only includes 30 stocks. In contrast, the S&P 500 is broader and more representative of the overall market because it includes 500 stocks.
Nonetheless, the Dow is still widely followed by investors and financial analysts because of its long history and its ability to indicate the overall health of the US economy.
The Dow comprises 30 large, well-established companies from various industries, including technology, healthcare, finance, and consumer goods. Companies such as Apple, Microsoft, Boeing, and Goldman Sachs are among those included in the index. The Dow is considered a blue-chip index because it comprises some of the most well-known and financially sound companies in the US.
In contrast, the S&P 500 is often considered a better representation of the overall stock market than the Dow because it includes a more diverse range of companies. Amazon, Facebook, Johnson & Johnson, and Visa are among the companies included in the index. It’s often considered a better representation of the overall stock market than the Dow because it includes a more diverse range of companies.
Another key difference between the two indices is their weighting methodology. The Dow is a price-weighted index: Each stock’s weight is based on its price per share. In contrast, the S&P 500 is a market capitalization-weighted index: Each stock’s weight is based on its market capitalization.
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