How the Dow and the S&P 500 Are Built, Weighted and Used

The Dow Jones Industrial Average tracks 30 large US companies and weights them by share price, so a company with a higher stock price moves the index more. The S&P 500 tracks about 500 large US companies and weights them by market value, so the biggest businesses count the most, which makes it the broader and more widely used measure of the US stock market.

Both are run by the same company, S&P Dow Jones Indices, and many of the Dow’s 30 members also sit in the S&P 500. The difference is how many companies each one holds and how each one decides which companies count most toward the result.

This guide explains how each index is built, why price weighting and market-value weighting can give different answers on the same day, what happens when a Dow company splits its stock, which index professionals rely on, and the funds investors use to track each one. FRC has no relationship with any fund or index provider mentioned and earns no commission from any investment.

Prefer to watch? FRC’s fact-checked investing playlist on YouTube covers the funds that track the S&P 500, including VOO, SPY and IVV.

Two Indexes, One Owner

The Dow and the S&P 500 started life at different companies. Charles Dow and his partners at Dow Jones & Company published the Dow in 1896, while Standard & Poor’s launched the S&P 500 in its current form in 1957.

Today both are owned and maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global. Each index has its own committee, its own rules and its own purpose.

That shared ownership is why many of the same companies appear in both. Dow members are chosen from the S&P 500, excluding transportation and utility companies, which have their own Dow Jones averages.

Build the Knowledge Behind the Headlines

Understanding how an index is built is the first step to understanding the funds that track it. FRC’s ETF Investing for Beginners course explains how indexes, index funds and ETFs work, from construction to pricing and taxes.

If you are preparing for a career in finance, the difference between price-weighted and market-value-weighted indexes is classic exam material. The SIE Examination Preparation course covers it as part of the exam you can pass before you are hired, and the Series 65 Exam Preparation course covers how advisers use indexes as benchmarks.

FRC’s programs and memberships are open to everyone, and every course can be spread across interest-free monthly payments. The same foundations apply whether you are investing your own money or advising others.

The Dow: 30 Companies Chosen by Judgment

The Dow Jones Industrial Average began with 12 companies in 1896 and has tracked 30 since 1928. Despite its name, it is no longer limited to industrial businesses; it spans technology, healthcare, finance, retail, energy and more.

There are no fixed numerical rules for joining the Dow. The committee looks for large US companies with an excellent reputation, sustained growth and wide investor interest, and it aims to keep the index representative of the US economy.

Changes are infrequent and usually happen when a company’s business shifts or the committee wants to rebalance the index’s sector mix. In 2024, for example, Amazon joined in February and Nvidia joined in November.

The S&P 500: 500 Companies Chosen by Published Rules

The S&P 500 tracks about 500 large US companies, slightly more than 500 shares in practice because some companies list more than one class of stock. It covers about 80% of the total market value of US-listed stocks, according to S&P Dow Jones Indices.

Companies are added by a committee using published criteria. A company must be based in the United States, meet a minimum market value, have enough shares available to trade, trade actively and have positive reported earnings over the most recent four quarters combined as well as the latest quarter.

The index is rebalanced quarterly, and the committee can add or remove companies whenever a member is acquired, shrinks or no longer fits the criteria. That steady turnover keeps the S&P 500 a close reflection of large US companies as a whole.

Price Weighting: How the Dow Counts

The Dow is price-weighted. To calculate it, the share prices of all 30 companies are added together and divided by a number called the Dow divisor.

That means a company’s influence depends entirely on its share price, not on the size of the business. A company with a $600 share price has twelve times the influence of a company with a $50 share price, even if the cheaper stock belongs to a much larger company.

The divisor is adjusted whenever a company splits its stock, pays a special dividend or is replaced, so the index level does not jump simply because of the change. Because the divisor is well below one, every $1 move in any Dow stock moves the index by several points, and by the same number of points whichever company it is.

Market-Value Weighting: How the S&P 500 Counts

The S&P 500 is weighted by market capitalization, the share price multiplied by the number of shares available to the public. A company worth $3 trillion has a hundred times the influence of a company worth $30 billion.

That approach reflects the actual size of each business in the economy. It also means the largest companies dominate the index, so a handful of very large technology companies can drive a large share of its daily moves.

Share price on its own makes no difference. A $50 stock and a $600 stock count equally in the S&P 500 if the two companies have the same total market value.

A Worked Example: Price vs Value

Imagine a simple index of two companies. Company A has a share price of $400 and a total market value of $40 billion; Company B has a share price of $40 and a total market value of $400 billion.

In a price-weighted index like the Dow, Company A counts ten times as much as Company B, because its share price is ten times higher. A 10% rise in Company A, worth $40, would move the index far more than a 10% rise in Company B, worth $4.

In a market-value-weighted index like the S&P 500, the reverse is true. Company B is ten times larger by value, so it counts ten times as much, and its 10% rise would move the index far more than Company A’s.

The Same Day, Two Different Answers

Because the two indexes count companies differently, they can tell different stories on the same day. Suppose a high-priced Dow member reports disappointing results and its stock falls sharply, while the largest technology companies rise.

The Dow could fall, pulled down by that single high-priced stock. The S&P 500 could rise, lifted by the largest companies in the market.

Both readings are accurate. They simply measure different things: the Dow reflects the share prices of 30 companies, while the S&P 500 reflects the combined value of about 500.

What Happens When a Dow Company Splits Its Stock

Stock splits show the difference most clearly. When a company splits its stock, it issues more shares at a lower price, without changing the total value of the business.

In the S&P 500, a split has no effect on the company’s weight, because its market value is unchanged. In the Dow, a split cuts the company’s share price, so its influence on the index falls immediately, even though nothing about the business has changed.

That is exactly what happened when Apple split its stock four-for-one in August 2020. Apple’s weight in the Dow dropped sharply, and on the same date the index committee made other changes, adding Salesforce, Amgen and Honeywell to rebalance the index’s exposure to technology and healthcare.

Why High-Priced Stocks Rarely Join the Dow

Price weighting also shapes who gets in. A company with a very high share price would carry an outsized weight in the Dow, so the committee generally avoids adding stocks whose prices would dominate the index.

For years, that kept some of the largest US companies out of the Dow, because their share prices were far higher than those of existing members. Stock splits have often cleared the way, as when Amazon joined in 2024 after splitting its stock twenty-for-one in 2022.

The S&P 500 faces no such issue. A company’s share price is irrelevant to whether it qualifies or how much it counts.

Read Percentages, Not Points

The Dow trades at a much higher number than the S&P 500, so its moves look larger in points. A 500-point fall in the Dow is a far smaller percentage move than a 500-point fall would be in the S&P 500.

Headlines that report “the Dow fell 500 points” can make a modest decline sound dramatic. A 1% move is a 1% move in either index, and percentages are the only fair way to compare them. Always convert a move in points into a percentage before drawing conclusions.

The higher level of the Dow says nothing about its size or quality. It is simply the result of adding up 30 share prices and dividing by the divisor.

How Closely the Two Move Together

Most of the time, the Dow and the S&P 500 move in the same direction, because both hold large US companies and many of the same names. Over long periods, their returns have often been broadly similar.

But they can diverge, sometimes for long stretches. When a few very large technology companies lead the market, the S&P 500 tends to benefit more, because those companies carry heavy weights; when high-priced industrial, financial or healthcare stocks lead, the Dow can outperform.

Those differences come from construction, not from one index being better. Knowing how each is built helps explain why their results do not always match.

Sector Mix and Dividends

With only 30 members, the Dow’s sector mix can shift noticeably with a single change, and it has no transportation or utility companies at all. The S&P 500 spreads across all 11 standard sectors, from technology and healthcare to energy, utilities and real estate.

Both indexes are price indexes in the form quoted in the news, so their headline levels leave out dividends. Each also has a total return version that assumes dividends are reinvested, which is the fairer measure when comparing a fund’s results with its index.

Funds tracking either index pass dividends on to investors, so check each fund’s current distribution history on the fund’s own website rather than relying on past figures.

Which One Professionals Use

Most professional investors, fund managers and advisers use the S&P 500 as the benchmark for large US stocks. It is broad, it is weighted by company size and it covers most of the value of the US market.

The Dow remains the most famous index in the world, quoted on every evening news bulletin because of its long history. But its 30 companies and price weighting make it less useful as a measure of how a diversified portfolio has performed.

On the Series 65, this is a benchmark suitability point. A portfolio of large US stocks should usually be measured against the S&P 500, not the Dow.

How to Invest in Each Index

Investors track both indexes through ETFs and index funds. For the S&P 500, some of the largest ETFs are the SPDR S&P 500 ETF Trust (SPY), the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV).

For the Dow, the SPDR Dow Jones Industrial Average ETF Trust (DIA) is the most widely held fund, and it pays its distributions monthly. Because the Dow holds only 30 companies, funds tracking it offer far less diversification than an S&P 500 fund.

Costs and trading volume vary, so always check the current expense ratio and holdings on the fund’s own website. FRC’s comparison of VOO vs VTI vs QQQ explains how some of the most popular funds differ, and FRC’s guide to the S&P 500 vs the Nasdaq compares the S&P 500 with the technology-heavy alternative.

Comparing the Two Indexes

The table below summarizes the main differences.

What the Exams Test

Expect at least one question on index construction on both the SIE and the Series 65. The most common asks which index is price-weighted; the answer is the Dow.

Other questions test the consequences. A stock split lowers a company’s weight in a price-weighted index but not in a market-value-weighted one, and a higher-priced stock has more influence in the Dow regardless of company size.

On the Series 65, benchmark questions follow. An adviser measuring a diversified portfolio of large US stocks should compare it with the S&P 500, because a benchmark must match the portfolio it is measuring.

Show What You Know

If you are building a career in finance, the ability to explain how indexes work is exactly the kind of knowledge employers expect. FRC’s Professional Membership lets you show it, not just claim it.

A QR code on your resume takes an employer to your verified Digital Profile, with your credentials, your exam progress and a short Video Resume in your own voice. You give them a fuller picture of who you are, and they spend less time checking claims.

Common Questions

Is the Dow or the S&P 500 a better measure of the stock market? Most professionals use the S&P 500, because it tracks about 500 companies, weights them by size and covers about 80% of US market value. The Dow tracks only 30 companies and weights them by share price.

Why does the Dow have a higher number than the S&P 500? Because the Dow adds up 30 share prices and divides by a divisor well below one, which produces a much larger figure. The higher level does not mean the Dow is bigger.

Are Dow companies also in the S&P 500? Generally, yes. Dow members are chosen from the S&P 500, excluding transportation and utility companies, so the 30 Dow companies are also S&P 500 members.

What happens to the Dow when a company splits its stock? The company’s weight in the Dow falls, because its share price drops, and the divisor is adjusted so the index level does not jump. In the S&P 500, a split has no effect on weight.

Can you invest in the Dow? Not directly, but you can buy a fund that tracks it, such as the SPDR Dow Jones Industrial Average ETF Trust (DIA).

Your Next Step

The Dow tracks 30 companies weighted by share price and chosen by committee judgment. The S&P 500 tracks about 500 companies weighted by market value and chosen by published rules, which is why professionals treat it as the benchmark for the US market.

Next time the two move in different directions, look at what drove each one. The answer usually lies in how each index counts its companies. Then check which index your own funds track, so you know which headline actually describes your portfolio.