Final answer:
A market index measures the collective performance of a group of stocks, representing a segment of the stock market, to provide insight into the overall market trends and help investors understand economic performance.
Step-by-step explanation:
The best description of what a market index does is A. An index measures market performance.
A market index tracks the price movements of a group of stocks to gauge the overall performance of a particular segment of the stock market. For instance, the Dow Jones Industrial Average includes 30 large U.S. companies, representing a price-weighted average of their stock performance. The S&P 500, another well-known index, measures the market capitalization-weighted performance of 500 large U.S. companies. Broad market indices like these reflect the combined performance of their constituent stocks, serving as a benchmark for investors to understand market trends and compare individual investment performance against. Market indices are therefore essential tools for investors and financial analysts to assess market sentiments, economic trends, and sector performances.