A stock market index (or just stock index) measures the value of a specific section of the stock market. A stock index takes a number of different companies’ stocks and groups them together so they can be traded as one financial instrument. An index therefore captures the performance of these stocks as ONE number.
Stock indices are calculated from the prices of these selected stocks and are usually weighted. They are a tool used by investors and traders to describe the stock market, and for comparison purposes between different sectors of the market. When investors are referring to the performance of ‘the market’ they are referring to the performance of a stock index.