Relationship of S&P 500 with Other US Indices
The S&P 500 is an index that tracks the shares of the 500 largest companies in the United States. This index provides important information about the health and performance of the US economy. The S&P 500 is a market capitalization-weighted index. That is, the larger the market caps of the companies, the more weight they have in the index. The relationship of the S&P 500 with other US indices is as follows:
- Dow Jones Industrial Average (DJIA): This index tracks the shares of the 30 largest industrial companies in the USA. It is a price-weighted index. That is, companies with higher share prices have more weight in the index. The DJIA is historically considered the benchmark for the US stock market. However, because the S&P 500 covers a wider range of sectors, it is considered to better reflect the US economy.
- Russell 2000: This index tracks the shares of the 2000 smallest companies in the USA. It is a market value weighted index. Russell 2000 represents the small-scale and entrepreneurial side of the US economy. This index may move in the opposite direction with the S&P 500. Because small companies may face different risks and opportunities compared to large companies.
- Nasdaq Composite: This index tracks the shares of all companies listed on the Nasdaq stock exchange. It is a market value weighted index. The Nasdaq Composite showcases the innovative and dynamic side of the US economy, especially as it includes companies in the technology sector. This index is closely related to the S&P 500. Because the largest companies in the S&P 500 are often tech giants, which are also listed on the Nasdaq.