Question

The S&P 500, the NASDAQ Composite, and the Dow Jones Industrial Average (DJIA) are three main stock indices that we often hear about in the news. What does it mean when we hear phrases like “Dow Jones is up today” or “S&P 500 is down today”? Please use the concept of average in your answer.

Answer 1

It is common that when the Dow Jones is up, the S&P will be down or when the S&P is up, the Dow Jones is down so all three indices are not up on some days because there is different composition of stocks present in all three index.

Dow Jones is a price weighted index and it is just a representative of 30 largest company in the United State economy where as standard and poor 500 is a wider reflector of overall United States economy as it comprises of 500 stocks and it is a value weighted index or a market capitalisation based index because this is termed as the most suitable index for the index funds investing.

so on some days when S&P 500 is down,Dow Jones could be up because of their composition and differentiation in weighting of different stocks. Dow Jones is the most dilusional out of all 3, as it is a price weighted Index of a very low number of Companies so there is a differenciation due to the composition of index .