Dow Jones vs. S&P 500: Which index actually represents the market?

When it comes to financial news, the Dow Jones Industrial Average (DJIA) and the S&P 500 are among the most commonly cited benchmarks for the stock market. When a talking head discusses the market going up or down on the news, they’re usually referencing one of these two stock indexes. Despite their popularity, however, these two indexes couldn’t be more different.

Here’s what you need to know about the Dow Jones Industrial Average and the Standard & Poor’s 500, including how each one is composed and weighted, how they differ in scope, and which might be the better representation of the American economy.

Before comparing America’s two favorite stock indexes, it’s important to understand exactly what a stock index is and what it is used for.

You can think of a stock index like a theoretical investment portfolio whose performance can be used as a benchmark, or standard against which comparisons can be made. Stock indexes are often designed to represent the stock market as a whole, or a specific portion of it, like small-cap stocks (those with a market cap of between $250 million and $2 billion) or the alternative energy industry.

Investors and hedge funds compare their returns to those of popular stock indexes to determine whether they “beat the market” over a certain period (like a year). Similarly, a company can compare its own stock’s performance to an index, using its outperformance of the market to communicate its success to the public and attract new investors.

Financial reporters and economic pundits use the performance of major stock indexes to make inferences about the state of the stock market and the economy at large.

Now, let’s get back to the two most commonly cited stock indexes: The S&P 500 and the Dow Jones Industrial Average.

While both the S&P and the DJIA are considered bellwether stock indexes (meaning they are used to gauge the state of the market and broader economy), it’s crucial for investors to understand how they differ.

When the Dow was first created, it included only 12 stocks, all of which were considered “industrials,” or companies involved in the production or processing of common materials, like gas, iron, oil, sugar, and tobacco. None of the original 12 stocks remain in the modern version of the Dow, which now includes 30 stocks.

For reference, there are between 4,000 and 5,000 publicly traded stocks in the U.S., so the Dow technically includes less than 1% of the companies that make up the stock market.

The S&P 500, on the other hand, is far broader, comprising 500 stocks—specifically, the 500 largest publicly traded stocks by float-adjusted market capitalization (stock price * number of publicly tradable shares). This equates to about 11% of the companies that make up the stock market.

The takeaway: Because of the significantly larger number of included companies, the S&P 500 would appear to capture a much more holistic view of the American stock market than the DJIA.

The S&P 500 comprises the 500 largest publicly traded U.S. companies by float-adjusted market cap, and its composition and weighting are recalibrated every quarter according to these criteria. In other words, the companies included in the index are selected and weighted based on an unchanging standard rather than being chosen by a person or group.

The DJIA, on the other hand, consists of 30 “blue-chip” companies selected by a 5-person committee made up of 5 representatives from S&P Global (the company behind the S&P 500) and The Wall Street Journal (which was co-founded by Charles Dow, creator of the DJIA). Companies are removed from the DJIA (and replaced) on an “as-needed” basis.

The committee selects the stocks that compose the Dow in an effort to create a small but effective representative sample of the American economy. That being said, a stock generally must meet the following criteria to be considered for inclusion:

• Non-transportation, non-utility company included in the S&P 500

• Incorporated and headquartered in the U.S.

• Good reputation

• Many investors/high trading volume

• History of sustained growth

• Generally considered a good representative of its market sector

According to S&P Global, “stock selection for The Dow is not governed by a strict set of rules […] the committee focuses on an eligible company’s reputation, its history of sustained growth, its interest to investors, and its sector representation of the broader market.”

The takeaway: Based on their respective selection criteria, the S&P 500’s more objective approach to market representation would appear to win out, as it’s less prone to bias and value judgments.

The Dow and S&P also use different weighting methods to determine the influence each component stock’s price has on the value of the index.

The S&P 500 weights companies by float-adjusted market cap (stock price * number of tradable shares on the market). In other words, the higher the value of all of a stock’s shares, the more influence the stock has on the index. This is the most common weighting method for stock indexes.

The Dow, on the other hand, weights its component companies by share price, so that stocks that trade at higher prices have more influence on the index’s value than those that trade at lower prices. This weighting method is relatively uncommon, as the price of a single share of a stock doesn’t necessarily correlate with the company’s total market value.

The takeaway: Since larger, more valuable companies make up more of the stock market by dollar invested, the S&P’s weighting method would appear to be a more accurate way to represent changes in the stock market’s overall value.

At first glance, the S&P 500’s larger number of included companies, more standardized stock-selection method, and market-cap-based weighting protocol would seem to make it a significantly better barometer of the American stock market than the Dow Jones Industrial Average.

For this reason, many investors prefer the S&P 500 to the Dow as their preferred bellwether index for the market and the broader economy, including long-time market analyst and TheStreet Co-Editor-in-Chief, Todd Campbell:

“Once upon a time, the Dow Jones was the de facto benchmark investors used to judge market action. That’s not true today. Since its inception, the S&P 500 has steadily eroded the DJ30’s influence, especially after Vanguard and many others launched S&P 500 index funds and ETFs, which are now widely used in Main Street retirement plans. The reality is that the DJ 30 offers a very narrow glimpse into the market, making the S&P 500 the better index to track.”

That being said, the differences between the two indexes have not resulted in as much variance as might be expected. In fact, their performances tend to be highly correlated, with the two moving in the same direction 94% of the time between 2008 and 2023, according to calculations by CNBC.

The graph below from S&P Global illustrates just how similarly the two performed between late 1989 and 2019.

Despite their differences, both indexes include some of the largest companies in the United States from a variety of major market sectors. Additionally, every component of the DJIA is also included in the S&P, usually with a relatively heavy weight due to large market caps, which often causes the two to rise and fall in concert.

Nevertheless, the Dow’s price-based weighting method and its small, 30-company scope do make it more prone to volatility than the S&P 500.

This story was originally published by TheStreet on Feb 4, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.