What is a stock market index?

A stock market index is the measurement of the value of a certain section of the stock market and is calculated from the prices of select stocks (varies by index), typical through a weighted average.

It is generally used as a tool by investors to describe or gauge the performance of the stock market.

Some popular indices are:

Index NameDescription
Dow Jones Industrial AverageIs an average of 30 significant stocks traded on the NYSE or NASDAQ.
S&P 500 IndexIs based on the market capitalizations of 500 large companies listed on the NYSE or NASDAQ.
NASDAQ Composite IndexIs based on the market capitalization of the more than 3,000 common equities listed on the NASDAQ.