Alphabet Stock Joins Dow Jones. What’s with These Index Updates?

The Dow Jones Industrial Average DJI has welcomed another tech heavyweight.

Alphabet GOOGL officially joins America's oldest stock index today, replacing Verizon VZ and pushing the 130-year-old benchmark another step away from its industrial roots.

Once upon a time, the Dow was the home of steel mills, railroads, oil companies, and manufacturers that quite literally built America.

These days, cloud computing, artificial intelligence, smartphones, and digital advertising occupy many of those same seats. That's less of an identity crisis than it is a reflection of how the US economy has evolved.

Since Alphabet's arrival naturally raises the question of how these famous indexes actually work, consider this your cheat sheet for the next family barbecue when someone confidently declares, "The Dow is over 50,000 dollars."

⚖️ Why the Dow Plays by Different Rules

The Dow is probably America's best-known stock index, yet it works in a surprisingly unusual way.

Unlike most modern indexes, the Dow is price-weighted. That means the companies with the highest share prices carry the biggest influence, regardless of how large the businesses actually are.

Think of it as dividing the dinner bill based on who ordered the fanciest most expensive dessert instead of who earned the highest salary.

That explains why Goldman Sachs GS, whose shares trade near $1,000, accounts for roughly 12% of the entire index. Alphabet GOOGL, despite being worth trillions of dollars, enters with a weight of only about 4% because its stock price is considerably lower at around $330.

It also explains why joining the Dow rarely creates buzz for a stock.

Unlike additions to the S&P 500 SPX, very few funds closely replicate the Dow because it contains only 30 companies and uses this distinctive weighting system. As a result, there is relatively little forced buying when a newcomer arrives.

History time. Nvidia NVDA slipped 0.8% on the day it joined the Dow in 2024, while Amazon AMZN edged 0.1% lower after its own inclusion.

📊 The S&P 500: America's Economic Snapshot

If the Dow tells the story of corporate icons, the S&P 500 SPX tells the story of the broader American economy.

The index includes the top 500 largest publicly traded companies spanning 11 different sectors, from healthcare and energy to financials, consumer goods, and technology.

Unlike the Dow, the S&P 500 is market-cap weighted. Market capitalization simply means a company's total value on the stock market, calculated by multiplying its share price by the number of shares outstanding.

The bigger the company, the larger its influence.

Together, the companies inside the S&P 500 are worth roughly $67 trillion (plus or minus a trillion). The top handful of companies account for more than 30% of the entire index's value.

These giants — Alphabet GOOGL, Nvidia NVDA, Microsoft MSFT, Apple AAPL, Amazon AMZN, and Meta META — have become so large that they often pull the whole market along for the ride.

💻 Nasdaq: Where Technology Comes to Hang Out

Then there's the Nasdaq Composite IXIC, which many investors associate with technology.

Technically, the Nasdaq Composite includes more than 3,000 companies listed on the Nasdaq exchange, ranging from biotech startups to software firms, semiconductor designers, retailers, and everything in between.

Because so many technology companies choose to list there, the index naturally carries a strong tech flavor. Play around with our Screener to browse all those public companies, their performance, and much more.

Its more concentrated sibling, the Nasdaq 100 NDX, narrows the field to the exchange's 100 largest non-financial companies. That's where investors find household names like Microsoft MSFT, Nvidia NVDA, Alphabet GOOGL, Amazon AMZN, Apple AAPL, Tesla TSLA, and dozens of AI leaders shaping today's market.

And guess who’s set to join this one? Ya boi, SpaceX SPCX, will be getting listed on the Nasdaq 100 on July 7. That means a bunch of funds will be buying it automatically, want it or not.

Off to you: What’s your preferred index to track the US economy? And to invest in? Or short?