A stock index is an index that measures stock prices in the market in general on a daily basis. It is the sum of the share prices of a specific group of companies multiplied by the size of these companies in the market. So that it is a positive indicator when the number of shares whose prices increased is more than the number of shares whose prices fell during the same day and vice versa.
Indices are a less risky means of trading than company shares, as they distribute the risks to the entire market instead of limiting them to the shares of a particular company, as many of the risks that affect the shares of individual companies are excluded.
Indices measure changes that occur to a group of companies in a specific field or region or the entire market in a sector and may also be more specialized, such as indices that depend on a specific industrial sector, such as the Dow Jones 30 Index (Dj30), which is an indicator of the industrial sector in the United States.
Stock indices and the general economy
Stock indices are a measure of economic performance
Financial markets act as a mirror of the economy (in most cases) through the interaction of supply and demand forces and the influence of these forces on the economic situation.
The general index of stock prices in the financial market is one of the previous indicators of events, considering that stock prices are a reflection of the expectations of economic events that will prevail in the future. Therefore, the movement in the level of the index will reflect the economic situation that will prevail and thus help the economic policy makers to take the correct measures.