Recently, while observing the US stock market trends, I found that many people actually don't understand what those common indices really are. Indeed, the US stock market is huge, unlike Japan which only has the Nikkei Index, or Taiwan which only has the Weighted Index. Instead, the US has multiple important indices, each representing different aspects of the market. Today, let's talk about these four major indices and why they perform differently.

The four major US stock indices are the Dow Jones Industrial Average, the S&P 500, the Nasdaq, and the Philadelphia Semiconductor Index. The reason there are so many indices is simply because there are too many listed companies in the US, and a single index can't cover the entire market.

The Dow is the oldest, appearing as early as 1896, when the US was industrializing. Initially, it included only 12 companies. Now, it has expanded to 30 companies, covering more industries. However, because it is price-weighted, some stocks with particularly high prices need to split before being included. This is also why some believe the Dow no longer fully represents the entire US market. But from a defensive perspective, the Dow, representing traditional economy and blue-chip stocks, often outperforms Nasdaq during market uncertainty and tends to be less volatile.

In comparison, the S&P 500 is more comprehensive. This index includes the 500 largest US companies by market capitalization, accounting for about 75% of the total US stock market value. Because of its strict screening and broad composition, the S&P 500 is regarded as the best barometer of the US economy's health. If you want to judge long-term trends and large capital movements, looking at the S&P 500 is more accurate than just the Dow.

Nasdaq is different. Established in 1971 as a purely electronic exchange, it was mainly composed of tech stocks. As the tech industry grew, this index gradually became a global tech market indicator. Many short-term traders treat Nasdaq as an immediate gauge of market sentiment—big gains indicate risk appetite and capital flowing into growth stocks; big drops signal capital retreat. Interestingly, Nasdaq's movements are highly correlated with Taiwan stocks, making it a key reference for investors watching Taiwan markets.

The Philadelphia Semiconductor Index is relatively young, established in 1993, tracking 30 representative semiconductor companies. As demand for electronics, cloud computing, and AI exploded, the market value of semiconductor stocks increased significantly, making the Philly Semiconductors the fourth major US stock index watched globally. With TSMC included in its components, fluctuations in the index also have a significant impact on Taiwan stocks.

Why do these four major indices show different trends? The most common reason is sector rotation. For example, if Nasdaq falls but the Dow rises, it indicates capital is shifting from high-flying tech stocks to traditional industries that have fallen sharply. The reverse can also happen. So, don't just look at the index's rise or fall; pay attention to who is leading the gains and who is leading the declines—that reveals where the capital is flowing. When all four indices move in the same direction, the trend is more reliable; if divergence occurs, it indicates the market is undergoing reshuffling.

There are mainly three ways to invest in these indices. The first is ETFs, which are bought and sold like stocks, usually with lower management fees. The downside is that leverage and short selling are not available. The second is futures, which have time sensitivity and leverage, typically settled every three months. Investment involves putting up margin and choosing to go long or short. However, because of leverage and the lack of daily price limits in US stocks, caution is essential—don't just use the minimum margin, or a wrong call could lead to big losses.

The third is Contracts for Difference (CFD), similar to futures but without expiration dates, with higher leverage, making them more suitable for short-term trading. CFDs allow trading with low margin, and positions can be closed within the same trading day, offering high flexibility. But be aware of overnight financing costs.

Ultimately, major US stock indices serve as indicators of global economic health. Whether investing directly in US stocks or other markets, they are worth paying attention to. For long-term investment in the four major indices, regularly purchasing related ETFs through dollar-cost averaging is recommended; for short-term gains, utilizing futures and CFDs' long and short features with appropriate leverage can be effective. The choice of tools mainly depends on your investment goals and risk tolerance.