A stock market index is a measurement of a portion of the stock market. It is calculated from the prices of selected stocks (often a weighted average). It is a tool used by financial managers and investors to describe the market, and to compare the return on specific investments. Below you will find an interactive chart of the iShares Dow Jones exchange traded fund, which is based on the Dow Jones Industrial Average. Learn more about the Dow Jones Industrial Average.
About Stock Market Indexes
A stock market index is a measurement that tracks the performance of a defined group of stocks. Instead of looking at thousands of individual prices, investors use an index as a single number that captures how that segment of the market is doing on any given day, week, or year.
How Indexes Are Built
Every index follows a rulebook. The rulebook decides which stocks are included, how often the list is updated, and how each company contributes to the final number. The two most common weighting methods are:
- Price-weighted — companies with higher share prices have more influence. The Dow Jones Industrial Average works this way: a $400 stock moves the index more than a $40 stock, regardless of company size.
- Market-cap-weighted — companies with larger total market values have more influence. Most modern indexes (and most ETFs) use this approach because it better reflects where investor capital actually sits.
Why Indexes Matter
Indexes serve three main jobs for everyday investors:
- A benchmark — a way to judge whether your portfolio or a fund is keeping pace with the market.
- A signal of market mood — when news anchors say "the Dow was up 300 points today," they're using the DJIA as shorthand for U.S. stocks broadly.
- An investable target — you can't buy an index directly, but ETFs and index mutual funds aim to replicate the performance of specific indexes at low cost.
Types of Indexes You'll See
Indexes come in many flavors: broad-market indexes track most of an exchange or country (like the NASDAQ Composite), blue-chip indexes focus on a small set of large, established companies (like the DJIA's 30 stocks), international indexes track non-U.S. markets (FTSE 100, Nikkei 225, Hang Seng), and volatility indexes like the VIX measure how nervous the market is rather than how it's priced. Use the dropdown above to switch between them.
