Glossary · Stocks and markets
Stock index
A stock index is one number that tracks the prices of a group of stocks, so you can see at a glance whether that part of the market went up or down.
Also called: stock market index, equity index, market index, benchmark index
Average of daily closes in Oct 2026: +14.7% in 12 months, price only.
In plain words
Checking 500 share prices every morning would take ages. A stock index boils them down to one number. If it rises from 5,000 to 5,050, the stocks in it rose 1% that day, on average and weighted the index’s way.
An index is a recipe: which stocks go in, and how much each one counts. The S&P 500 holds about 500 large US companies, each counted by its market value; the Dow Jones Industrial Average holds 30, counted by share price; the Nasdaq Composite holds almost every stock listed on Nasdaq.
The level itself means little: each index started at some round number on some day and has moved with prices since. The S&P 500 averaged 7,723 in Oct 2026. What matters is how much an index changes, not how big its number is.
Example
Building a tiny index
- Take three companies worth $60 billion, $30 billion and $10 billion: $100 billion in all. Call that level 100.
- The next day the big one rises 10% (to $66 billion), the middle one is flat and the small one falls 10% (to $9 billion).
- Together they are now worth $105 billion, so the index is 105: up 5%.
- Had the small company risen 10% and the big one fallen 10%, the index would be 95: the same moves, the opposite result.
That is why a few giant companies can move a market-value-weighted index more than hundreds of small ones.
One level deeper
There are three common recipes. Market-value weighted (the S&P 500, the Nasdaq Composite, most world indexes): each company counts by its market cap, often only the freely traded part. Price weighted (the Dow, Japan’s Nikkei 225): a $400 share counts eight times as much as a $50 one, whatever the size of the companies. Equal weighted: every company counts the same.
Most indexes you see quoted are price indexes: they leave out dividends. A total return version adds the dividends back, and over decades the gap is enormous. Since 1871, $1 in US stocks grew to about $1,739 from prices alone, but to about $1.19M with dividends reinvested.
An index keeps renewing itself: companies that shrink or fail are dropped and replaced by rising ones, a quiet form of survivorship bias. And you cannot buy an index itself, only a fund that copies it: an index fund or an ETF.
The S&P 500 since 1871
The index level month by month, prices only, on a log scale: equal steps mean equal percentage moves. Before the S&P 500 started in 1957, the series continues the older indexes it replaced, as compiled by Robert Shiller. Since 1871 it has risen to about 1,739 times its starting level, 4.9% a year.
The numbers behind the chart
| Date | S&P 500 (price) |
|---|---|
| Jan 1871 | 4 |
| Dec 1880 | 6 |
| Dec 1890 | 5 |
| Dec 1900 | 7 |
| Dec 1910 | 9 |
| Dec 1920 | 7 |
| Dec 1930 | 16 |
| Dec 1940 | 11 |
| Dec 1950 | 20 |
| Dec 1960 | 57 |
| Dec 1970 | 90 |
| Dec 1980 | 134 |
| Dec 1990 | 329 |
| Dec 2000 | 1,331 |
| Dec 2010 | 1,242 |
| Dec 2020 | 3,695 |
| Dec 2022 | 3,912 |
| Dec 2023 | 4,685 |
| Dec 2024 | 6,011 |
| Dec 2025 | 6,853 |
| Oct 2026 | 7,723 |
Why it matters
Indexes are the scoreboard: “the market” in the news is almost always an index.
They are the yardstick for professional investors. A fund manager who does not beat the index after fees has added nothing, and over long periods most have not, which is why index funds that simply copy an index became so popular.
Trillions of dollars in index funds and ETFs buy whatever is in the index, so joining or leaving a big index can move a company’s shares.
A common mistake
Myth: An index at 40,000 is “more expensive” than one at 5,000.
In fact: Index levels are not prices you can compare: each index started at its own arbitrary number. The Dow’s number is much bigger than the S&P 500’s because of how each was built, not because its stocks are pricier. Compare percentage changes, never points.
Questions people ask
What are the main US stock indexes?
The S&P 500 (about 500 large companies, weighted by value), the Dow Jones Industrial Average (30 big companies, weighted by share price) and the Nasdaq Composite (nearly everything listed on Nasdaq). The Russell 2000 tracks smaller companies.
Can you invest in an index?
Not directly, since an index is just a calculation. You buy a fund that holds the same stocks: an index fund or an ETF. The biggest ones charge a few hundredths of a percent a year.
Does an index include dividends?
The headline numbers usually do not: they are price indexes. Total return versions, with dividends reinvested, exist for the main indexes, and they are what an index fund actually earns before its fee.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.