The Dow Jones Industrial Average topped 40,000 for the first time on May 16, 2024. It spent the next few hours hovering around that mark, occasionally dipping under. But the breakthrough, even if fleeting, nonetheless marks another symbolic milestone in a monthslong bull market, coming three months after the S&P 500 index surpassed 5,000 for the first time.

The Conversation asked Alexander Kurov, a financial markets scholar, to explain what stock indexes are and to say whether these kinds of milestones are a big deal or not.

What are stock indexes?

Stock indexes measure the performance of a group of stocks. When prices rise or fall overall for the shares of those companies, so do stock indexes. The number of stocks in those baskets varies, as does the system for how this mix of shares gets updated.

The Dow Jones Industrial Average, also known as the Dow, includes shares in the 30 U.S. companies with the largest market capitalization – meaning the total value of all the stock belonging to shareholders. That list currently spans companies from Apple to Walt Disney Co.

The S&P 500 tracks shares in 500 of the largest U.S. publicly traded companies.

The Nasdaq composite tracks performance of more than 2,500 stocks listed on the Nasdaq stock exchange.

The DJIA, launched on May 26, 1896, is the oldest of these three popular indexes, and it was one of the first established.

Two enterprising journalists, Charles H. Dow and Edward Jones, had created a different index tied to the railroad industry a dozen years earlier. Most of the 12 stocks the DJIA originally included wouldn’t ring many bells today, such as Chicago Gas and National Lead. But one company that only got booted in 2018 had stayed on the list for 120 years: General Electric.

The S&P 500 index was introduced in 1957 because many investors wanted an option that was more representative of the overall U.S. stock market. The Nasdaq composite was launched in 1971.

You can buy shares in an index fund that mirrors a particular index. This approach can diversify your investments and make them less prone to big losses.

Index funds, which have existed only since Vanguard Group founder John Bogle launched the first one in 1976, now hold trillions of dollars.

Why are there so many?

There are hundreds of stock indexes in the world, but only about 50 major ones.

Most of them, including the Nasdaq composite and the S&P 500, are value-weighted. That means stocks with larger market values account for a larger share of the index’s performance.

In addition to these broad-based indexes, there are many less prominent ones. Many of those emphasize a niche by tracking stocks of companies in specific industries like energy or finance.

Do these milestones matter?

Stock prices move constantly in response to corporate, economic and political news, as well as changes in investor psychology. Because company profits will typically grow gradually over time, the market usually fluctuates in the short term while increasing in value over the long term.

The DJIA first reached 1,000 in November 1972, and it crossed the 10,000 mark on March 29, 1999. On Jan. 22, 2024, it surpassed 38,000 for the first time. Breaking through 40,000 on May 16 prompted a flurry of congratulatory news reports.

Because there’s a lot of randomness in financial markets, the significance of round-number milestones is mostly psychological. There is no evidence they portend any further gains.

For example, the Nasdaq composite first hit 5,000 on March 10, 2000, at the end of the dot-com bubble.

The index then plunged by almost 80% by October 2002. It took 15 years – until March 3, 2015 – for it to return to 5,000.

As 2024 has progressed, the Nasdaq composite has regularly closed at record highs.

Index milestones matter to the extent they pique investors’ attention and boost market sentiment.

Investors afflicted with a fear of missing out may then invest more in stocks, pushing stock prices to new highs. Chasing after stock trends may destabilize markets by moving prices away from their underlying values.

When a stock index passes a new milestone, investors become more aware of their growing portfolios. Feeling richer can lead them to spend more.

This is called the wealth effect. Many economists believe that the consumption boost that arises in response to a buoyant stock market can make the economy stronger.

Is there a best stock index to follow?

Not really. They all measure somewhat different things and have their own quirks.

For example, the S&P 500 tracks many different industries. However, because it is value-weighted, it’s heavily influenced by only seven stocks with very large market values.

Known as the “Magnificent Seven,” shares in Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla now account for over one-fourth of the S&P 500’s value. Nearly all are in the tech sector, and they played a big role in pushing the S&P across the 5,000 mark.

This makes the index more concentrated on a single sector than it appears.

But if you check out several stock indexes rather than just one, you’ll get a good sense of how the market is doing. If they’re all rising quickly or breaking records, that’s a clear sign that the market as a whole is gaining.

Sometimes the smartest thing is to not pay too much attention to any of them.

For example, after hitting record highs on Feb. 19, 2020, the S&P 500 plunged by 34% in just 23 trading days because of concerns about what COVID-19 would do to the economy. But the market rebounded, with stock indexes hitting new milestones and notching new highs by the end of that year.

Panicking in response to short-term market swings would have made investors more likely to sell off their investments in too big a hurry – a move they might have later regretted. This is why I believe advice from the immensely successful investor and fan of stock index funds Warren Buffett is worth heeding.

Buffett, whose stock-selecting prowess has made him one of the world’s 10 richest people, likes to say, “Don’t watch the market closely.”

If you’re reading this because stock prices are falling and you’re wondering if you should be worried about that, consider something else Buffett has said: “The light can at any time go from green to red without pausing at yellow.”

And the opposite is true as well.

This article is an updated version of a story that was first published on Feb. 15, 2024.

Alexander Kurov, Professor of Finance and Fred T. Tattersall Excellence in Finance Research Chair, West Virginia University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Physicists consider black holes one of the most mysterious objects that exist. Ironically, they’re also considered one of the simplest. For years, physicists like me have been looking to prove that black holes are more complex than they seem. And a newly approved European space mission called LISA will help us with this hunt.

Research from the 1970s suggests that you can comprehensively describe a black hole using only three physical attributes – their mass, charge and spin. All the other properties of these massive dying stars, like their detailed composition, density and temperature profiles, disappear as they transform into a black hole. That is how simple they are.

The idea that black holes have only three attributes is called the “no-hair” theorem, implying that they don’t have any “hairy” details that make them complicated.

Hairy black holes?

For decades, researchers in the astrophysics community have exploited loopholes or work-arounds within the no-hair theorem’s assumptions to come up with potential hairy black hole scenarios. A hairy black hole has a physical property that scientists can measure – in principle – that’s beyond its mass, charge or spin. This property has to be a permanent part of its structure.

About a decade ago, Stefanos Aretakis, a physicist currently at the University of Toronto, showed mathematically that a black hole containing the maximum charge it could hold – called an extremal charged black hole – would develop “hair” at its horizon. A black hole’s horizon is the boundary where anything that crosses it, even light, can’t escape.

Aretakis’ analysis was more of a thought experiment using a highly simplified physical scenario, so it’s not something scientists expect to observe astrophysically. But supercharged black holes might not be the only kind that could have hair.

Since astrophysical objects such as stars and planets are known to spin, scientists expect that black holes would spin as well, based on how they form. Astronomical evidence has shown that black holes do have spin, though researchers don’t know what the typical spin value is for an astrophysical black hole.

Using computer simulations, my team has recently discovered similar types of hair in black holes that are spinning at the maximum rate. This hair has to do with the rate of change, or the gradient, of space-time’s curvature at the horizon. We also discovered that a black hole wouldn’t actually have to be maximally spinning to have hair, which is significant because these maximally spinning black holes probably don’t form in nature.

Detecting and measuring hair

My team wanted to develop a way to potentially measure this hair – a new fixed property that might characterize a black hole beyond its mass, spin and charge. We started looking into how such a new property might leave a signature on a gravitational wave emitted from a fast-spinning black hole.

A gravitational wave is a tiny disturbance in space-time typically caused by violent astrophysical events in the universe. The collisions of compact astrophysical objects such as black holes and neutron stars emit strong gravitational waves. An international network of gravitational observatories, including the Laser Interferometer Gravitational-wave Observatory in the United States, routinely detects these waves.

Our recent studies suggest that one can measure these hairy attributes from gravitational wave data for fast-spinning black holes. Looking at the gravitational wave data offers an opportunity for a signature of sorts that could indicate whether the black hole has this type of hair.

Our ongoing studies and recent progress made by Som Bishoyi, a student on the team, are based on a blend of theoretical and computational models of fast-spinning black holes. Our findings have not been tested in the field yet or observed in real black holes out in space. But we hope that will soon change.

LISA gets a go-ahead

In January 2024, the European Space Agency formally adopted the space-based Laser Interferometer Space Antenna, or LISA, mission. LISA will look for gravitational waves, and the data from the mission could help my team with our hairy black hole questions.

Formal adoption means that the project has the go-ahead to move to the construction phase, with a planned 2035 launch. LISA consists of three spacecrafts configured in a perfect equilateral triangle that will trail behind the Earth around the Sun. The spacecrafts will each be 1.6 million miles (2.5 million kilometers) apart, and they will exchange laser beams to measure the distance between each other down to about a billionth of an inch.

LISA will detect gravitational waves from supermassive black holes that are millions or even billions of times more massive than our Sun. It will build a map of the space-time around rotating black holes, which will help physicists understand how gravity works in the close vicinity of black holes to an unprecedented level of accuracy. Physicists hope that LISA will also be able to measure any hairy attributes that black holes might have.

With LIGO making new observations every day and LISA to offer a glimpse into the space-time around black holes, now is one of the most exciting times to be a black hole physicist.

Gaurav Khanna, Professor of Physics, University of Rhode Island

This article is republished from The Conversation under a Creative Commons license. Read the original article.