There are a variety of market indexes that function as statistical gauges of the market's performance. Many investors look at the Dow Jones Industrial Average (DJIA) or the Nasdaq 100 Index as benchmarks or representatives of the stock market as a whole. On the downside, these indices are composed of only 30 and 100 stocks, respectively.
Perhaps the most famous and most commonly used market index to measure the market's performance as well as acting as an indicator of the health of the economy is the S&P 500. The Standard and Poor's 500 Index consists of the 500 largest companies in the U.S. by weighted market cap.
Read on to discover additional market indexes that shed light on the overall stock market.
Key Takeaways
- Many investors consider one of the major indexes, such as the Dow Jones Industrial Average (DJIA) or Nasdaq 100 as broad market indexes.
- Better representations might be the Wilshire 5000 or Russell 3000, as they take into consideration almost the entire investable stock market, including large-cap, mid-cap, and small-cap stocks.
- The most popular index and the one most investors and analysts use to gauge the health of the U.S. economy is the S&P 500.
- The Nasdaq 100 has handily outperformed the other major market indexes over the last decade.
Market Indexes
Wilshire 5000
The index with one of the broadest representations of the total market is the FT Wilshire 5000 Total Index Series.
Contrary to what its name implies, the Wilshire 5000 can include a lot more (or less) than 5,000 equities. As of March 31, 2023 (latest information), the index included 3,480 stocks. The purpose of the index is "to reflect the performance of all publicly traded U.S. equity securities that have readily available prices."
The largest exchange-traded fund (ETF) is the SPDR S&P 500, which tracks the S&P 500 Index.
Russell Indexes
For investors interested in how small-caps are doing, one of the most widely followed indexes is the Russell 2000. The Russell 2000 index tracks 2,000 small-cap firms in the U.S. Small-cap firms are generally more risky as their survival rates are lower.
Now, the Russell 2000 selects the smallest stocks from the Russell 3000 universe. The Russell 3000 includes nearly 98% of the entire U.S. stock market, focusing on all large-cap, mid-cap, and small-cap stocks. It has a very broad exposure. Both the Russell 3000 and the Wilshire 5000 are similar in that respect, hence their similar performance as shown in the performance table below.
The diagram below illustrates both the number of securities and the degree of representation of each index.
:max_bytes(150000):strip_icc()/dotdash_Final_What_Is_the_Best_Way_to_Measure_the_Total_Market_Jan_2020-0d59d1aa9619444795d963d49c7422da.jpg "How to Measure the Total Stock Market (1)")
Market Index Returns
Finally, let's take a look at just how these market indexes have performed over the last five and 10-year periods. The widely used DJIA and Nasdaq 100 are broad-market indexes but they track very different companies. To start, the DJIA tracks such companies as Caterpillar, Cisco, and Coca-Cola; mega-cap companies that in many cases pay steady dividends but do not witness as much growth.
Meanwhile, the Nasdaq 100 is largely technology-based, with such holdings as Netflix and NVIDIA. The tech industry has seen significant growth in the last decade. Thus, it's no surprise that over the longer term (10 years in this case), the Nasdaq 100 outperformed all of the other indexes. The worst performer was the Russell 2000, which as noted before, focuses on small-cap companies.
The S&P 500 wasn't able to beat out the Russell 3000 or the Wilshire 5000, both of which include a much broader array of stocks than the S&P 500. Below are the five- and 10-year performance of each index as of the dates noted.
| Stock Market Index Returns | ||
|---|---|---|
| Returns | 5-year | 10-year |
| DJIA(as of 10/17/2023) | 5.75% | 8.26% |
| Nasdaq 100(09/29/2023) | 15.06% | 17.64% |
| Russell 2000 (10/17/2023) | 3.52% | 6.25% |
| Russell 3000 (10/17/2023) | 10.41% | 11.14% |
| Wilshire 5000 (3/31/2023) | 10.69% | 11.92% |
| S&P 500 (10/17/2023) | 9.26% | 9.70% |
Can You Invest in Market Indexes?
No, you cannot invest directly in a market index as they are simply indexes that track certain areas of the financial markets. There are, however, many mutual funds and exchange-traded funds (ETFs) that track these indexes that investors can invest in to gain exposure.
What Is the European Stock Index Called?
Europe has many countries with their own stock markets, therefore, there are quite a few popular European stock indexes. Some of the most popular are the FTSE 100, the Euronext 100, the DAX, and the CAC 40.
What Are the Sectors of the S&P 500?
The sectors of the S&P 500 are information technology, healthcare, financials, consumer discretionary, communication services, industrials, consumer staples, energy, materials, utilities, and real estate.
The Bottom Line
Stock market indexes seek to track certain areas of the stock market. Some look to include as much of the investable U.S. equities market as possible, such as the Wilshire 5000 and the Russell 3000. Others take a much more narrow view, such as the 30 highest-quality stocks in the DJIA.
There are indexes that are so niche they focus on very specific sectors, such as mining companies or semiconductor companies. Investors have a plethora of options when it comes to investing in funds that track indexes, allowing investors to seek exposure to the entire stock market as well as specific areas of it.
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