At 11:03 AM on July 16, 2020, the S&P 500 Index was down 0.71%, the Dow Jones Industrial Average was down 0.56% and the NASDAQ Composite Index was down 1.24%. Are any of these more accurate indicators of the day’s “market return” than the others? If so, why? If you followed the market regularly, to which index would you give the most credence and why?
S&P 500 index is framed after considering the data of the largest 500 companies according to the capitalization weighting method floating freely in the market. In this method of calculation both the number of shares and price of each stock matters.
Further, Dow Jones industrial average is calculated after considering the 30 largest companies in accordance of the method of weighting price. This method considers only the stock price in its calculation. So, the weightage is allotted to the price of the stock only.
The NASDAQ composite includes the data of all the listed companies listed in the stock market. So, it had a wider scope.
These index can influence the decision of investor but none of them can provide the accurate return as calculated by the investor.
It is recommended to follow the NASDAQ stock market as it had a wider scope and portrays a true picture on its index.
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