What is the Dow, and why does everyone talk about it?

The Dow Jones Industrial Average is the oldest widely used stock index, started in 1896 with a dozen industrial companies. Today it tracks 30 large, well-known US businesses, names like Microsoft, McDonald’s and JPMorgan. When the Dow "drops 500 points," that is the sum of movements in those 30 stocks, scaled by a divisor.

It matters mainly because it is famous. Newspapers have reported it for over a century, so it became the number people recognise. Professionals rarely use it as a benchmark, though, for two reasons: 30 companies is a small sample, and it weights by share price rather than company size, so a $400 stock counts far more than a $50 one regardless of how big the business is.

The S&P 500, with 500 companies weighted by market value, is the benchmark most funds compare against and the index most index funds track. If you want one number for "how is the US market doing," use that one.

Points versus percent is the other thing worth knowing. A 500-point drop sounds dramatic, but with the Dow above 40,000 that is barely over 1 percent, an ordinary day. Always convert to a percentage before deciding whether to care.