Understanding Stock Market Indexes
Learn how market indexes work and why they matter for ETF investors.
What is a Stock Market Index?
A stock market index is a measurement of a section of the stock market. It is computed from the prices of selected stocks and is used to track the performance of a specific market segment, sector, or the entire market.
Indexes serve as benchmarks for investors to compare their portfolio performance and form the basis for index funds and ETFs that aim to replicate their returns.
If the S&P 500 rises 2% in a day, it means the weighted average of the 500 largest US companies increased by 2%.
How Indexes Work
Stock Selection
Index providers select stocks based on specific criteria like market cap, liquidity, sector, or geographic location.
Weighting Method
Each stock is assigned a weight determining its influence on the index value. Common methods include market-cap and equal weighting.
Value Calculation
The index value is calculated continuously during trading hours based on the weighted prices of constituent stocks.
Regular Rebalancing
Indexes are periodically rebalanced to add/remove stocks and adjust weights according to methodology rules.
Index Weighting Methods
Market-Cap Weighted
Larger companies have more influence. Most common method used by major indexes.
S&P 500, MSCI WorldEqual Weighted
All stocks have the same weight regardless of size. Gives smaller companies more influence.
S&P 500 Equal WeightPrice Weighted
Stocks with higher share prices have more influence. Older methodology.
Dow Jones, Nikkei 225Major World Indexes
| Index | Region | Description | Components |
|---|---|---|---|
| S&P 500 | USA | 500 largest US companies by market cap | 500 |
| MSCI World | Global | Large and mid-cap stocks across 23 developed markets | ~1,500 |
| FTSE 100 | UK | 100 largest UK companies listed on London Stock Exchange | 100 |
| DAX | Germany | 40 largest German companies on Frankfurt Stock Exchange | 40 |
| Nikkei 225 | Japan | 225 large Japanese companies, price-weighted | 225 |
| MSCI Emerging Markets | Emerging | Large and mid-cap stocks across 24 emerging markets | ~1,400 |
All Tracked Indexes
| Index | Ticker | Category | Region | ETF Count |
|---|---|---|---|---|
| MSCI World Index (Net) | URTH | Equity | Global | 9 ETFs |
| BBG Global Aggregate Index (USD) | - | Bonds | Global | 7 ETFs |
| ICE US Treasury 1-3 Year Bond Index | GOVT | Bonds | North America | 6 ETFs |
| S&P 500 Index | I:SPX | Equity | North America | 6 ETFs |
| ICE US Treasury 20+ Year Bond Index | GOVT | Bonds | North America | 6 ETFs |
| MSCI Total Return Net USA Index | - | Equity | - | 5 ETFs |
| JPM EMBIG DIV CORE (USD) | - | Equity | Emerging Markets | 5 ETFs |
| IBOXX US Dollar Liquid Investment Grade Index (USD) | LQD | Equity | North America | 5 ETFs |
| Bloomberg US Floating Rate Note < 5 Years Index (USD) | - | Equity | North America | 5 ETFs |
| S&P 500 INDEX | I:SPX | Equity | North America | 5 ETFs |
| BBG Euro Aggregate Corporate Index | - | Bonds | Europe | 5 ETFs |
| iBoxx USD Liquid High Yield Capped (USD) | LQD | Equity | North America | 5 ETFs |
| FTSE G7 Government Bond Index (USD) | - | Bonds | Global | 4 ETFs |
| MSCI WORLD SRI SELECT REDUCED FOSSIL FUEL NET Index (USD) | URTH | Equity | Global | 4 ETFs |
| MSCI Total Return Net World Index | - | Equity | - | 4 ETFs |
| BBG World Government Inflation-Linked Bond Index (USD) | - | Bonds | Global | 4 ETFs |
| MSCI Japan Investable Market Net Index (USD) | EWJ | Equity | Asia Pacific | 4 ETFs |
| Bloomberg MSCI US Corporate ESG SRI Index (USD) | - | Bonds | North America | 4 ETFs |
| Markit iBoxx Euro Liquid High Yield Index (EUR) | IEAC.L | Equity | Europe | 4 ETFs |
| NASDAQ 100 Index | I:NDX | Equity | North America | 4 ETFs |
| Bloomberg US Mortgage Backed Securities Index | - | Equity | North America | 4 ETFs |
| MSCI WORLD MINIMUM VOLATILITY (USD) | URTH | Equity | Global | 4 ETFs |
| Bloomberg MSCI US Corporate 0-3 ESG SRI Index (USD) | - | Bonds | North America | 4 ETFs |
| S&P 500 Price Return Index | I:SPX | Equity | North America | 4 ETFs |
| J.P. Morgan ESG-Emerging Markets Bond Index Global Diversified (USD) | - | Bonds | Emerging Markets | 4 ETFs |
Types of Indexes
Broad Market Indexes
Cover entire markets or large segments, like the S&P 500 or MSCI World. Ideal for core portfolio holdings.
Sector Indexes
Focus on specific industries like technology, healthcare, or financials. Allow targeted sector exposure.
Bond Indexes
Track fixed income securities including government and corporate bonds. Important for diversification.
Regional Indexes
Cover specific geographic regions like Europe, Asia, or Emerging Markets. Enable regional allocation.
Thematic Indexes
Focus on investment themes like clean energy, AI, or cybersecurity. Capture specific trends.
ESG Indexes
Select companies based on environmental, social, and governance criteria. For sustainable investing.
Major Index Providers
MSCI
Global leader known for MSCI World, MSCI Emerging Markets, and ESG indexes.
S&P Dow Jones
Provider of S&P 500, Dow Jones Industrial Average, and many sector indexes.
FTSE Russell
Known for FTSE 100, Russell indexes, and global benchmarks.
STOXX
European specialist offering EURO STOXX 50 and DAX indexes.
How Indexes Relate to ETFs
ETFs track indexes to provide investors with easy, low-cost access to diversified market exposure. When you invest in an index ETF, you're essentially buying a slice of all the stocks in that index.