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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:

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What could account for these similarities in patterns of fluctuation yet differences in their magnitudes?

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    What would you expect? If you look at the stocks, you will see several show up in all three. They are all US stocks, and predominantly large cap. Technology fluctuates more, which is why Nasdaq is more volatile.
    – AKdemy
    Feb 17 at 11:03
  • Are the DJIA stocks all in the S&P 500? If so, the two are guaranteed to move in a similar manner.
    – RonJohn
    Feb 18 at 6:08

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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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    There is lots of stuff that affects all stocks, too, like interest rates.
    – user253751
    Feb 17 at 20:54
  • The most interesting part of this that I have found is that if you look at the performance of different indexes or funds you can usually pinpoint only 4 or 5 trading days in the whole year that cause that fund to over or underperform the others. I wish I could figure out how one could make money on this knowledge, but I'm stumped!
    – Andy
    Feb 17 at 22:42
  • @Andy Companies release earnings 4 times a year, and that triggers large price changes. Otherwise, without news, stock prices move slowly and generally in concert. Investors who try to predict earnings and buy and sell around that are "playing the earnings," which can be risky, particularly if one doesn't follow a company closely.
    – user71659
    Feb 18 at 7:29
  • @user71659 Oh, interesting. I hadn't thought about earnings because I was looking at various index type funds and while there are four earnings periods per year I assume the companies in the index don't all report on the same day.
    – Andy
    Feb 19 at 18:14
  • @Andy They don't, but also keep in mind index funds aren't as diversified as you might think. Take the NASDAQ 100, e.g. QQQ. 24% of that fund is in Apple and Microsoft, and 41% is in 5 big tech (Apple, Microsoft, Amazon, Google, Facebook). Besides one of those companies having a big change after severely beating/missing earnings, often the whole sector is influenced by the results of one of their earnings.
    – user71659
    Feb 19 at 20:00
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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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  • Interesting like what?
    – HelloDarkWorld
    Feb 17 at 22:18
  • @HelloDarkWorld Interesting in terms of explanations for their divergence. They all represent 'market sentiment' at some level. When they give different answers, the question is: why? I personally don't put a lot into the Dow. It's too manufactured and I think outdated/old-fashioned. I imagine people who follow the Dow dressed in 3-piece pin-striped suits saying things like "yeah, see!" and "23 skidoo!".
    – JimmyJames
    Feb 17 at 22:23
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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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