What Stock Market Indexes Tell Us

Wednesday was a good example of why watching the market minute-by-minute will make you a nervous wreck. Besides being unnecessary for long-term investors, it's hard to get an accurate picture of what is really happening because things move so fast. If you tuned in at mid-day, the market was way down, but rallied just before closing to post respectable gains in the major market indexes. Even so, the Dow had a 200-point swing between it's high and low for the day.

What do the popular stock market indexes like the Dow, the S&P500 and the Nasdaq Composite really tell us and how can we use them in a meaningful way? This article examines the three most popular indexes and explains what they are and are not.