How to Read the Stock Market Index

Understand what the index covers. To read it, it's important to know what the index covers. The S&P 500 index, for example, covers large United States stocks, while the NASDAQ composite covers only stocks traded on the NASDAQ exchange.

Understand the numbers. Stock market indexes are weighted averages of the composite values of the stocks within the index. As such, market indexes are generally most useful when compared to previous index values.

Read the change in the market index as a percentage not a dollar amount. Thus, a movement from 8500 to 8800 represents a 3.53 percent change (300/8500).

Compare market index numbers to other times for relevant comparison. Comparing the market index value to the value from one year ago gives an idea of the market performance for a 1-year period. Comparing the market index value to the previous low gives the performance of the current uptrend.