There are three main indices in the US stock market. Let’s start with the oldest. The Dow Jones Industrial Average (DJIA) was created in 1896 by Charles Dow at the Wall Street Journal. Dow co-founded the Journal a few years earlier after having spent the beginning of his career reporting on Newport real estate for The Providence Journal. At that time the DJIA was made up of 12 industrial stocks, the most notable being General Electric. Today, there are 30 components to the index, and it includes other sectors of the economy as well. The DJIA remains the most exclusive of the three indices because of its small number of components. In 2020 Salesforce, Amgen and Honeywell became its newest members.
The S&P 500 first appeared in 1957 and is the broadest of the big three. The index is made up of the 500 largest publicly traded domestic stocks, as determined by market capitalization. This measurement is done by multiplying a stock’s price by the number of shares outstanding. Today, the top 5 are Apple, Microsoft, Amazon, Google, and Facebook. The S&P stands for Standard & Poor’s, an organization that came about in 1941 from the merger of Poor’s Publishing and Standard Statistics. Today the index, along with the DJIA, is managed by a joint venture between S&P Global, the CME Group and News Corp. News Corp also owns The Wall Street Journal.
The NASDAQ is the newest and most unique of the three indices because it is also a stock exchange. In 1971 it opened for business and was the very first electronic stock exchange; no trading floors or posts, just a bunch of market makers out in cyber space repeatedly updating stock quotes on a computer screen. Initially the NASDAQ attracted only small startups that did not have enough earnings or assets to qualify for the “Big Board” aka The New York Stock Exchange. As the 20th century came to an end the NASDAQ found itself listing more and more firms from the technology sector, which was not nearly as developed in the 1980’s and 90’s as it is now. Many of the early names like Apple and Microsoft stayed loyal to the exchange and today it serves as a proxy for the technology sector. The NASDAQ as an index didn’t catch on until the 1990’s when it experienced a meteoric rise during the dot-com bubble.
All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.