Why are the patterns of fluctuation for the Dow Jones, S&P500, and Nasdaq on a typical trading day so similar?
Why are the patterns of fluctuation for the Dow Jones, S&P500, and Nasdaq on a typical trading day so similar?
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HelloDarkWorld · External communityPost link
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Author: HelloDarkWorld
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I've noticed that on a given trading day, the patterns for fluctuation for the three indexes are very similar, yet the differences are the magnitude of the fluctuations. See:
What could account for these similarities in patterns of fluctuation yet differences in their magnitudes?
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mhoran_psprep · External communityPost link
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Author: mhoran_psprep
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There are reasons for the similarities of the big moves in the middle of the day. Sometimes the market moves in reaction to big news. It could be an inflation or unemployment number; it could be political news like congress failing to pass an important bill; or surprising news about a big famous company.
Why do those events show in these three indexes? They are all three US based indices. Yes there can be global events such as COVID, Brexit or the war in Ukraine that show up in the big movements. You will sometimes see terrible news or great news spread across the global markets.
This isn't always true. There can be days where one index will move one way, lets say up, but the other two move the other way, lets say down. That happens when the big news doesn't impact the three indices the same way.
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JimmyJames · External communityPost link
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The short answer is that all of these are supposed to be proxies of the market as a whole. The Dow Jones is probably the least representative of the three given its small sample size. The S&P is typically treated as if it represents the entire US market, which isn't really true but usually close enough for many purposes.
Each of these has its own 'flavor'. If you are learning about investing, understanding the differences is a good place to start. As mentioned in mhoran_psprep's answer, they don't always move together. That's when things get interesting.
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reirab · External communityPost link
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Author: reirab
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The short answer is that all three indices are designed to be broad measures of how U.S. stocks are performing. So, if they're meeting (or even coming close to fulfilling) that objective, then you would expect to see the same patterns (but not necessarily the same magnitudes) in each of them.
There are differences in how each index attempts to fulfill the objective of tracking U.S. markets, though. For example, the DJIA tracks only 30 prominent companies. Thus, news that is specific to one of those companies will generally affect the Dow more than the S&P 500 which, as the name suggests, tracks 500 different companies. Of course, a stock comprising 1/30 of an index will have much more impact on the index than one that comprises only 1/500 of an index.
However, news that impacts entire large industries or, especially, the U.S. economy as a whole will generally affect all three indices in similar ways, since a broad section of the component stocks of all three will be affected.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: reirab Source score (net votes, not local likes): 4 Original post: https://money.stackexchange.com/a/155320 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The short answer is that all three indices are designed to be broad measures of how U.S. stocks are performing. So, if they're meeting (or even coming close to fulfilling) that objective, then you would expect to see the same patterns (but not necessarily the same magnitudes) in each of them. There are differences in how each index attempts to fulfill the objective of tracking U.S. markets, though. For example, the DJIA tracks only 30 prominent companies. Thus, news that is specific to one of those companies will generally affect the Dow more than the S&P 500 which, as the name suggests, tracks 500 different companies. Of course, a stock comprising 1/30 of an index will have much more impact on the index than one that comprises only 1/500 of an index. However, news that impacts entire large industries or, especially, the U.S. economy as a whole will generally affect all three indices in similar ways, since a broad section of the component stocks of all three will be affected.
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