Does the level of the Dow Jones index reflect the current state of the economy?

If so, the economy should be considered to be in Great shape. The Dow currently remains to be almost at its all-time high. How can this be possible if the economy is in bad shape?

Saturday, March 13th, 2010 Uncategorized

5 Comments to Does the level of the Dow Jones index reflect the current state of the economy?

  1. It’s tied to it. But it’s not the complete determining factor.

    2. hardheaded0282 on March 13th, 2010

  2. The Dow is an index – it doesn’t reflect the state of the economy with all of its factors. There are many other far more important econ. factors that play a large role in determining the state of the economy, i.e. interest rates, bond and treasury yields, oil prices international economics and the unemployment rate.

    3. getreal... on March 13th, 2010

  3. You are absolutely correct, sir.

    To everyone that complains about the Dow not being reflective, there’s a reason why it is the most closely watched index. It is a quick snapshot of what’s going on and historically it has been in line with the markets in general (link 1).

    By the way, to the naysayers, the NYSE Composite Index, which covers ALL common-stock issued on the New York Stock Exchange hit all-time highs in the fourth quarter this year (link 2). Is that wide enough for you?

    The conclusion? The economy is not in bad shape. What you’re hearing in the news, is concern about bad stuff POSSIBLY coming around the corner.

    GDP growth improved to 4.9% in the 4th quarter of 2007 (link 3); Personal Income increased (link 4), Retail Sales are up (link 5); we are not near a recession yet.

    I’ve been paying attention to this stuff a lot lately. I’m not saying everything will be rainbows and sunshine in 2008, but we have to be accurate when we talk about what’s going on.

    4. ChocolateCoveredGoodness on March 13th, 2010

  4. Sub prime lending cost and effect

    5. sassyalways26 on March 13th, 2010

  5. Given that you don’t apparently understand that the Dow Jones Index is only 30 out of thousands & thousands of publically-traded companies, how is it that you feel qualified to give stock-picking advice?

    6. Thin Kaboudit on March 13th, 2010

Dow Jones Index

The Dow Jones Industrial Average (NYSE: DJI, also called the DJIA, Dow 30, INDP, or informally the Dow Jones or The Dow) is one of several stock market indices, created by nineteenth-century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is an index that shows how certain stocks have traded. Dow compiled the index to gauge the performance of the industrial sector of the American stock market. It is the second-oldest U.S. market index, after the Dow Jones Transportation Average, which Dow also created. The average is computed from the stock prices of 30 of the largest and most widely held public companies in the United States. The "industrial" portion of the name is largely historical—many of the 30 modern components have little to do with traditional heavy industry. The average is price-weighted. To compensate for the effects of stock splits and other adjustments, it is currently a scaled average, not the actual average of the prices of its component stocks—the sum of the component prices is divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, to generate the value of the index. Since the divisor is currently less than one, the value of the index is higher than the sum of the component prices.
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