See The Three Most Powerful Wall Street Indices

The three most powerful terms heard in Wall Street are S&P 500, NASDAQ and Dow Jones. And these are nothing but the market indices.A market index gives a summary of the overall market by tracking some of the top stocks within that market. Its usefulness lies in its ability to provide a representative snapshot of the overall market’s direction.The S&P 500, an NYSE index, tracks the 500 largest U.S. companies across a wide span of industries and sectors.

The index uses a market cap weighting structure, which means its performance is more weighted towards companies with higher market values. This also means that exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY) that track this index give their highest allocations to large-cap companies like Apple (AAPL), Exxon Mobil (XOM), and General Electric (GE).On the contrary, the Dow Jones Industrial Average is a price weighted index of 30 blue chip U.S. stocks. It is the oldest continuing U.S. market index. As it is a price weighted index, stocks with a higher price get more weight and therefore have a greater influence over the index’s performance. And finally, NASDAQ refers to both an index and a trading exchange. There is an electronic NASDAQ exchange, where investors buy and sell stocks and there is a NASDAQ market index that tracks the roughly 3,000 companies that trade on the exchange. The market index is commonly known as the “NASDAQ Composite.” Though the exchange does trade some banking companies, airline companies, and even a few other businesses like Starbucks (SBUX) and Steve Madden (SHOO), the NASDAQ’s virtual trading floor seems to be more crowded with tech companies like Apple and Google.The NASDAQ-100 is another popular index that includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Market based on market capitalization.