The most important equity market indexes are the S&P 500, Nasdaq Composite and Russell 2000. These indexes in total provide a comprehensive view of the stock market and insight into economic trends. Each is a benchmark with a specific focus. Typically, they move in the same direction, but the intensity of the move can differ based on market conditions, economic factors and investors' inflows.

S&P 500

The S&P 500 is composed of 500 stocks chosen for their representations of the economy. The index is weighted by market capitalization so a larger company has more influence on the index than a smaller company. Components of the index are chosen by Standard & Poor's. Occasionally, companies are added or dropped from the index depending on changes in the economy. The S&P 500 is considered the best representation of large-cap stocks, and most investors and traders use it is a benchmark for the whole stock market.

Nasdaq Composite

The Nasdaq is unique in that it is a technology-heavy index. Many of the fastest-growing, most innovative companies are listed on the Nasdaq. It is also weighted by market capitalization. Two factors that make the Nasdaq important are its concentration of riskier stocks and the number of foreign companies listed on it. For these reasons, the Nasdaq tends to be more volatile than the S&P 500.

Russell 2000

The Russell 2000 is important because it represents the small-cap universe. These smaller companies tend to be more exposed to the domestic economy and are more leveraged to the economy given their smaller size and balance sheets. Thus, this index is considered a leading indicator for the economy. When traders are anticipating improving economic conditions, they pile into the Russell 2000.

  1. What are the most common market indicators to follow the U.S stock market and economy?

    Understand some of the key indicators analysts use to follow the U.S. stock markets and to assess the overall condition of ... Read Answer >>
  2. Is it possible to invest in an index?

    While you cannot buy indexes, which are just benchmarks, there are three ways for you to mirror their performance. Read Answer >>
  3. How is the value of the S&P 500 calculated?

    The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The value ... Read Answer >>
Related Articles
  1. Insights

    An Introduction to Stock Market Indices

    Lear more about the five most talked about stock indices and what makes them all different.
  2. Investing

    Key Factors Of The Russell 2000 Index

    The Russell 2000 index represents the small cap universe, with a broad selection of fast growth companies at the bottom end of the capitalization spectrum.
  3. Investing

    The Top 3 ETFs For Investing in the Russell 200 Index (IWL, IWY)

    Learn about three ETFs that track the Russell Top 200 Index and how these ETFs have a very high correlation with the S&P 500 index.
  4. Investing

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  5. Insights

    How Nasdaq Makes Money

    NASDAQ provides a marketplace which offers money-making opportunities to investors. Investopedia explains how NASDAQ makes money.
  6. Investing

    The Hidden Flaws of Index Investing

    Index investing isn't always better than active investing. Here's why.
  7. Investing

    IWN: iShares Russell 2000 Value ETF

    Read an in-depth description of the iShares Russell 2000 Value fund, an exchange-traded fund that tracks undervalued small-cap stocks.
  8. Investing

    An Unheralded Low Beta ETF

    This low beta ETF tracks an offshoot of a popular index and could be a better bet than its cap-weighted rivals.
  1. Russell 2000 Index

    The Russell 2000 index measures the performance of approximately ...
  2. Russell 2500 Index

    The Russell 2500 Index is a broad index, featuring 2,500 stocks ...
  3. Russell 3000 Value Index

    A market-capitalization weighted equity index maintained by the ...
  4. Composite

    A composite is a grouping of equities, indexes or other factors ...
  5. Russell Top 50 Index

    A market capitalization weighted index of the 50 largest stocks ...
  6. Russell Midcap Index

    The Russell Midcap Index is a market capitalization weighted ...
Hot Definitions
  1. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  2. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  3. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  5. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
Trading Center