Question

Apple Inc. announced a 4-for-1 stock split in late July. Which index is more likely to be influenced by Apple’s decision?

A.Standard & Poor’s 500 index

B.Dow Jones Industrial Average (DJIA)

C.Equally weighted index

D.Both B and C.

Answer 1

A.Standard & Poor’s 500 index

The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities. Other common U.S. stock market benchmarks include the Dow Jones Industrial Average or Dow 30 and the Russell 2000 Index, which represents the small-cap index.

The S&P does not currently provide the total list of all 500 companies on its website, outside of the top 10. Many of the top companies in the S&P 500 include technology firms and financial businesses.

The Widely Quoted S&P 500

The S&P 500 is one of the most widely quoted American indexes because it represents the largest publicly traded corporations in the U.S. The S&P 500 focuses on the U.S. market's large-cap sector and is also a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading.

S&P 500 vs. DJIA

The S&P 500 is often the institutional investor's preferred index given its depth and breadth, while the Dow Jones Industrial Average has historically been associated with the retail investor's gauge of the U.S. stock market. Institutional investors perceive the S&P 500 as more representative of U.S. equity markets because it comprises more stocks across all sectors (500 versus the Dow's 30 Industrials).

Furthermore, the S&P 500 uses a market capitalization weighting method, giving a higher percentage allocation to companies with the largest market capitalizations, while the DJIA is a price-weighted index that gives companies with higher stock prices a higher index weighting. The market capitalization-weighting structure is more common than the price-weighted method across U.S. indexes.