A Fool's Introduction to Indexes
How many times have you heard someone ask, "How'd the market do today?" But what is "The Market?" And how do we know how it did? Usually, the answer reflects the performance of an index, rather than the market as a whole.
Back in 1896, Charles Dow created a benchmark of 12 large U.S. companies to serve as an indicator of how well stocks in general performed each day. That was the first broad-market index and it is still the one that is most often used to answer the question, "How'd the market do today?" In the years since 1896, the Dow Jones Industrial Average (DJIA) has been expanded to include 30 top U.S. companies, and many other indexes have been devised. Still, the Dow remains the most influential stock index in the world.
But the Dow cannot be all things to all people. A broader stock market index, the S&P 500, is also quoted often. As you might guess, the S&P 500 is a listing of 500 of the largest market cap companies traded on U.S. exchanges. It was created and is maintained by Standard and Poor's Index Services along with the S&P 400 (400 top mid-sized companies), the S&P 600 (top 600 small companies) and a couple dozen international and global indexes.
What all indexes have in common is that the value of the index changes proportionally