A market index is a measure of the performance or activity of a particular section, segment or the entire stock or bond market. It represents a hypothetical portfolio of securities representing a specific market or sector and is used as a benchmark to gauge the overall health and direction of the market it represents.
Market indices are often used by investors to track the performance of their investments, make comparisons between different investment options, and evaluate the potential risk and return of various portfolios. Some common examples of market indices include the S&P 500 (which measures the stock performance of large companies in the US), the Dow Jones Industrial Average (which tracks the stock prices of 30 major corporations) and the NASDAQ Composite Index (which represents a broad range of technology, media and communication-related companies).
In summary, market indices provide valuable information to investors about the overall health and direction of specific markets or sectors. They are used as benchmarks for evaluating portfolio performance and making informed decisions about investments.