Stock Market Index: Definition, Examples, and FAQ

Stock market indexes are numerical measures that represent the performance of a section of, or all of, the stock market. They can be shown to reflect what has happened in shares recently. The Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 (S&P 500), and Nasdaq Composite Index are examples of popular stock market indexes.

Let’s answer the question of what is the Stock Market Index and try to answer what you need to know about it.

The Definition of the Stock Market Index

Stock market indexes are used to measure the movement of an entire stock market. They show how a variety of stocks have performed over time and may be used as benchmarks for investment performance.

The Dow Jones Industrial Average, or DJIA, is perhaps the most famous index in the United States. It tracks 30 companies that trade on the New York Stock Exchange and is often described as a barometer of U.S. economic growth.

A stock market index measures changes in prices over time of a specific set of stocks, usually listed on an exchange such as the NYSE or NASDAQ. These indexes may shed light on overall market trends, sector strength and weakness, their general movements certain parts of the day’s trading activity, etc.

Examples of Stock Market Indexes

The following are all examples of stock market indexes, listed in no particular order. The Associated Press compiles a list of additional notable American stock market indexes at the end of this article.

  • Dow Jones Industrial Average (DJIA) – This is perhaps the best known U.S. index and appears regularly in major news outlets because it reflects movements in the entire stock market. It tracks 30 representatives, or blue-chip stocks, from various industrial sectors that are traded on the New York Stock Exchange (NYSE). This index hit its all-time high during the height of the dot-com bubble in 1999 when technology companies dominated market capitalization within U.S.-based indexes like this.
  • Standard & Poor’s 500 (S&P 500) – This index is a widely used measure of large-cap company performance and is often referred to as “the market”. It tracks the movements of the larger, more established companies that represent about 70% of total market value on American stock exchanges.
  • Nasdaq Composite Index – The Nasdaq Composite Index tracks all stocks traded on the NASDAQ. In essence, it reflects what has happened in high tech stock prices recently. It is particularly important because this exchange has been a popular place for technology start-up companies to list their stock since the late 1980s.

Stock Market Index FAQs

Q: Why are stock market indexes important?

A: These benchmarks allow the public to track the movements of US stocks over time. They are used by investors, financial companies, and news outlets as a yardstick for making comparisons between different types of stocks. For example, one investor may choose to buy shares in emerging markets while another purchases S&P 500 or Nasdaq-listed companies because they believe these indices will do better than all other stocks over the next several months or years.

Q: What is the difference between an index fund and an index?

A: An index fund invests money into every company that makes up a given stock market index, such as the DJIA or S&P 500 for the US stock market, and then tracks the performance of that index over time. It is different from an index in that an index fund does not attempt to mimic the movements of the listed companies; it simply makes investments according to certain rules.            

Q: What are some common types of indexes?

A: A variety of different types of indexes exist depending on the market being tracked and the methodology used in their calculation. Some of the most popular ones in use today include price-weighted, capitalization-weighted, float-adjusted, and dividend-weighted indexes.

Q: Where can I find stock market index data?

A: Many websites offer real-time or delayed quotes for a number of different indices that can be displayed on your computer or mobile device through a web browser or supported app. A few examples include AP Indexes (news), (U.S.), Yahoo Finance (news and quotes), and (global).

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