How to Calculate Return on Indices in a Stock Market

By Motley Fool Staff – Updated Apr 29, 2025 at 11:49 PM EST

Key Points

Stock indexes like S&P 500 and Dow Jones track market trends, aiding in performance comparison.
Sector-specific indexes gauge various industries, useful for targeted investment insights.
Return on indexes can be calculated using initial and final prices, reflecting investment value change.

A stock index can give you a good idea of how the overall stock market, or a certain portion of the stock market, is performing. The Dow Jones Industrial Average is perhaps the best-known index, but it isn't widely considered to be a great snapshot of the entire market, as it consists of only 30 companies.

Other popular market indexes include the S&P 500, which is generally considered to be a great indicator of how the overall market is performing, the tech-heavy NASDAQ Composite index, and the Russell 2000 index, a broad index of small-cap companies. There are also indexes for individual sectors, such as technology, healthcare, and finance, which can help track the performance of certain types of companies.

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A digital board displaying stock market indexes and what they're trading for. — Image source: Getty Images.

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Indexes can also be useful for measuring the performance of your own portfolio against a benchmark. For example, if your stock portfolio drops by 7% in a certain month, but the S&P 500 drops by 10%, you are still beating the market even though the value of your holdings fell.

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Screenshot 2024-06-06 at 12.52.56 PM — Note: This formula is useful for determining the return of individual investments as well.

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A positive percentage indicates that the index increased during the time period, while a negative percentage indicates that the index fell. So, during October 2015, the S&P 500 increased in value by 8.3%.

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