Stock Price Charts - What is the purpose of a stock index?

What is the purpose of a stock index?

1) Indexes/indices are created in order to get a broader picture of the market. 2) Sector-indices are created to gain exposure to specific industries. 3) A money manager's bonus depends on how much he outperforms a particular index.
Stock indexes are created to show the overall health of the market or specific sector. There are broad based indexes, such as the S&P 500 (SPX) and the Dow Jones Industrial Averages (INDU). These are designed to show the performance of the overall market. There are also narrow based indexes such as the Amex Disk Drive Index (DDX) which show the performance of those companies who design and manufacture disk drives and other electronic storage devices. Just like you might look at average house prices (an index) to see what is happening to prices in your area, stock market investors watch indexes to gauge the overall performance of the overall market (and the economy) or a small sector.
It give the broder picture of the market.