An Introduction to Stock Market Indices

7th Dec 2021

Say it’s New Year’s Eve and you’re sitting with a bunch of your friends. After a lot of pleasant banter, somebody eventually pops the obvious question, “So, how was your year?”

How would you answer that? After all, it’s not easy to gauge each of the 365 days in the past year, isn’t it? Instead, you’re more likely to quickly whiz through the bygone year in your head and revisit the important things that happened to quickly assess what kind of a year you had.

Got a promotion, bought a new house and took that vacation of your dreams? Well, in that case, you’ll perhaps tell your friend that you had a fabulous year.

On the flip side, if you lost someone close to you, or had to move to a new place you didn’t really like, you wouldn’t call your year so great.

So, essentially, the important events helped you assess how the year went, isn’t it?

Similarly, moving on to the stock markets, let’s consider this question: “How is the stock market behaving today?”


The Stock Market


The stock market is a kinds of funds and shares available for investors in the world. Stock prices of different companies can fall drastically or rise very high within a short span of time. How do investors decide which stock to invest in?

Below are a few commonly available stock market indices for investors who are planning to start investing for the first time. These are undoubtedly a great place to start your stock market journey.

World Stock Markets

Source: Shutter Stock

These are the world’s most widely used stock market indices. The top 10 stocks in the world as ranked by Bloomberg are tracked on these indexes. The first indices that I’ll discuss in this article are the Dow Jones Industrial Average and the S&P 500.


How to read stock market indices

Yet, just how do you read the chart of the stock market? As someone might observe, to fully understand the market, you need to understand how to read stock market indices.

First of all, what is a stock index? Well, it’s simply an index that measures the performance of a stock market, rather than simply a type of market index (e.g. the S&P 500 index), or the performance of a certain asset (e.g. the S&P 500 fund), or any other asset (e.g. the XBB Global Dividend fund).

Well, it’s simply an index that measures the performance of a stock market, rather than simply a type of market index (e.g. the S&P 500 index), or the performance of a certain asset (e.g. the S&P 500 fund), or any other asset (e.g. the XBB Global Dividend fund).


Important stock market indices


These indices are incredibly useful when you’re just starting your stock market education and are unsure which one is the best to buy into. What I mean by this is, you can’t go wrong investing in any of the indices.

Also, know how is nifty calculated.


However, there’s more than enough good to do so. But what I’m going to talk about today is a limited selection of the top-10 indices, sorted in the order of their highs, lows and composite index values, respectively.

So, before we dig into this one, let me tell you a bit about the Dow Jones Industrial Average, since it’s the oldest and most familiar stock market index.


Conclusion

Once you step inside the stock market, the power of time has a way of bringing things to life. Using such an imaginary moment, we can give an answer to the question above in much simpler words.

At the market open, let’s say it’s 2 p.m., your Sensex is at 36,000, your S&P 500 is at 2,900 and your Nifty50 is at 7,880.

1. Your Sensex and S&P 500 are at the level of the last trading day of 2016, in December 2016.

2. Your Nifty50 is at the level of the last trading day of the previous month, i.e. January 2017.3. You see the new highs on the Sensex and S&P 500 in early January 2017, when many stock market participants had initially sold all their holdings in preparation for 2017.

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