Indexes are just bunches of different stocks that are lumped together to represent a particular part of the market. The Dow consists of large companies from a fairly broad range of industries. The S&P and Nasdaq are similarly broad. Think of these as averages that tell a bit about how the Market is doing.

Within each index, the individual stocks that make up the index are being traded separately. Some go up, some go down, the index may not move much at all. Now, big movements can mean all sorts of things. Right now hot topics are finance, energy, automotive. These are three huge industries that are facing some difficult times. Right now it would not be surprising to see big drops in these industries, and the index as well.

As for the indexes following each other, it gets more interesting. There are thousands of different ways to invest money based on market conditions. Large mutual funds and brokerage services make large transactions based on their opinion of how the market is moving. There is usually some amount of commonality between these large companies, so they tend to all make the same sort of huge transactions. Because they are involved in a broad range of industries, their large transactions influence the indexes. If there is a lot of common opinion followed by common actions from the big investors, the indexes will move somewhat together.

Example: News that the middle east is going to cut oil production usually means that the price of oil is going to go up. This probably means that oil companies are going to make more money. At the same time, higher oil prices means that the cost of transporting stuff is going to to up. Oil company stocks may go up, big investors who believe this will start to buy oil stocks. This will make the energy portion of an index increase. Transportation companies may not make as much profit with higher fuel costs, investors who agree, may start to sell off transportation company stocks. This may cause the transportation portion of the indexes to go down.


That's my nutshell explanation. I have a link below to a group that does a much better job of explaining finance is easy to understand terms.

hedge funds. Hedge funds own large pieces of many different stocks. When certain stocks are rising or falling rapidly, hedge funds automatically purchase or sell along with the trend. That keeps them from losing too much, and often leads to them making good amounts of money.

So when one stock starts falling, the hedge funds start selling and that cause the stocks that the hedge fund owns to fall, often hedge funds are deeply invested in all three sectors so all three fall in unison. Having those three indexes fall causes other hedge funds to fall past their limit, and then they fall as well. If they turn around, then they all turn around in unison.

The bottom line is, blame the super rich hedge fund owners for market swings.

Everything moves in unison, not just the three indexes. Net buyers/sellers (the minor influence) continuously interacts with Mother Nature (the major influence) to determine price. Mother Nature operates invisibly -- energy leaking from every atom causes atoms to vibrate (a.k.a., Brownian motion; see Robert Brown, 1827), and this circular vibration permeates everything including stock prices. The rate of ranging of any stock price centers on the square-root-of-time revealing the existence of this circular vibration (Einstein, 1905 and 1917). In two-dimensions, the atomic vibration acts as the major focal point while net buyers/sellers act as the minor focal point, causing stock prices to move elliptically (Kepler, 1604). In three-dimensions, the circular vibrations along the x-, y- and z- axis move price along a log-spiral (R. N. Elliott, 1932; a.k.a., Elliott waves). Correctly stated, net buyers/sellers do not set stock prices. Rather, they produce a repetitive action that allows Mother Nature to set price. This, for example, is why price does not seem to mate up well with news. It also explains why we find log-spirals in everything from conch shells to the Andromeda galaxy. Is this manipulation? Yes, more than you are able to process as an earthling living back in the year 2008.

When major stock indices diverge that opens up a profit opportunity, and that attracts arbitrage trades which act to push the indices back together, erasing the profit opportunity in the process. The result is indices that tend to move together.

The trading principle being exploited here is that there is a general tendency toward a uniform rate of profit across the whole economy.

Since most portfolios are balanced, they likely contain stocks from each market base. The ups and downs will never be exact because news in tech stocks might be good while the on the energy front may be bad. Generally it is the overall economy news that can effect all three national and global level. Simply said, up or down news affecting buying and selling.

They don't.

They are loosely correlated and the more stocks in the indexes, the closer the correlation but there are many days thas some indexes are up and others are down.

The reason markets ebb and flow together is because it is the same people buying and selling the securities. The market moves on feelings not logic.