Drop the DOW Now!

Drop the DOW Now!

www.financialpost.com

The most recognized stock market indicator in the world is the Dow Jones industrial average. However, its usefulness as a benchmark index for the U. S. equity market has become questionable recently. Much of the debate on its viability focuses on changes in the average during the past year.

(visit the link for the full news article)

What to do? Ignore reference to the Dow Jones industrial average as a benchmark of the U. S. equity market when considering performance of the U. S. equity market. Better to use a more broadly based index, such as the S&P 500 index.

Here we go... finally a bit of reason.

The S&P has been holding his basis much better than the DOW.

I think the age of the DOW is over...



www.financialpost.com
(visit the link for the full news article)

whatever you look at its all pretty much the same picture. within a few % marks.

the dow is pretty relatively small compared to the s&P500 though.

What we're seeing here is the blame game coming into full force.
(We all know the Americans are good at that game).

Though the DOW and S&P's patterns are pretty much parallel, there are those who will single out the worst performer and target for ridicule.


Keep in mind, all indexes are down at the moment.

They're looking for a scapegoat to blame for negative speculation. Don't buy into it.

[edit on 7-3-2009 by johnsky]

That is right. I agree. And here all this time I thought the economy was doing so bad, now I find out we were just looking at the wrong index. Thank god everything is fine now. The economy is doing great now that we know which market to watch. THANKS!!!

Nothing to see here, the economy is great, everyone move along now!

reply to post by HunkaHunka


You must work for the Government: if you don't like the numbers coming out of a set index, just drop the index.

Why drop the DOW now? Buy low sell high! Of course by the time Mr. Obama is done ruining our economy, buying low might be when the DOW hits 4,000. If the DOW has another week like last week, that would only take a couple of months.

reply to post by RRconservative


RIGHT! All Obama's fault. Everything was fine until Jan 20th.

SO DUMB!!! I am so tired of the division in this country.

[edit on 7-3-2009 by WSPfan]

They are right but for all the wrong reasons...
First you have to understand just what the DOW is

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry

Okay so what you have here is the cream of the crop the best of the best... the problem lies in what is on this list
GENERAL MOTORS 1.45
BANK OF AMERICA 3.14
CITIGROUP INC 1.03
ALCOA INC 5.22
GENERAL ELECTRIC 7.06
Listed is the company and Friday closing price (6 March 09)

Now the DOW's choices as best of the best are no longer valid. and need to be changed to keep being a bellwether of market trends..
what would I pick as a replacement?
GOOGLE INC-CL A 308.57
CME GROUP INC 182.45
AUTOZONE INC 152.76
MASTERCARD INC-A 142.44

As you can see there are lots of companies still making money but when the leaders in their industry change the DOW needs to replace the old with the new... DOW is a horrible indicator of general market conditions as it only shows what should be the top performers only those top companies have changed...

Reply to WSPfan:


Actually things started going downhill when Democrats took over Congress in 2006.

reply to post by RRconservative


No, things started going downhill when Greenspan started pushing the credit bubble around. The bubble was ready to burst by the time the Dems took congress, not to mention that their SLIM majority was always kept in check by crybaby Reps in congress that would never let anything get done. What makes me sick is that Reps won't let anything get accomplished if it means Dems will get credit and Dems won't let anything get accomplished if it means Reps get the credit. Both parties are beholden to entities other than their voters. WE, the people, have been completely left out of the loop.

Why squable about something both governments messed up.

Thats what the government wants. They want the people divided so they fight amongst themselves rather than the true issue. Proof; look how they campaign against one another trying to make the other look like the lesser evil. Both right and left are to blame and its time for people to put their differences aside.

[edit on 7-3-2009 by disfugured]

Yea add AmEx to the list of dow components under $10 - ...
Previously incomprehensible development!

Something will have to give here!

Originally posted by Mainer
reply to post by HunkaHunka

 

You must work for the Government: if you don't like the numbers coming out of a set index, just drop the index.

That's not it at all.

First, the rule is you have to be $10 or more a share to be on the Dow Jones... However, many stocks listed on the Dow Jones Index are indeed below this marker.

Plus, it no longer is representative of the larger market.

To the person who said the DOW and the S&P were pretty much parallel... it's obvious you don't follow financial news enough to realize the error in your statement.


Why all the hate when someone recommends getting rid of something that is irrelevant?

It's kinda like everything people thought was relevant before 1980 just doesn't apply anymore... That's why we didn't elect a 71 yo president ya know?

All I'm saying is that I agree... if the index no longer is a reflection of the market strength overall, then drop it like a hot rock.

Originally posted by RRconservative
Actually things started going downhill when Democrats took over Congress in 2006.

I don't know how many times I've read something like this from you, but do you have anything at all to back this up? Because the DOW, itself doesn't support what you're saying.

From Jan 06 to Jan 08, there was a steady rise, after being pretty level since 2000. On what do you base your statement???

[atsimg]http://files.abovetopsecret.com/images/member/1996d49998e8.png[/atsimg]

Whoa no hate here....

Point I was making is that AmEx added to the previous five makes six.
Six components that are trading under $10-

The DJIA is not static.
Components have been removed...and replaced. That is all I was saying.
The Wall Street Journal & Dow Jones & Company wont be giving that up anytime soon.

And just because I am in a loving mood today...I found some folks that are thinking the same way you are!

Take a look at the article, you will feel vindicated!

247wallst.com...

We do not expect that this index will be disbanded. History might be enough to keep it alive. But there is money behind it too for Dow Jones, a unit of News Corp. McGraw Hill owns the S&P indexes. The first index we look at is the S&P 500 Index. The DJIA 30 is just no longer representative of “The Market” except for the fact that it goes down every day.

Originally posted by DaddyBare
Now the DOW's choices as best of the best are no longer valid. and need to be changed to keep being a bellwether of market trends..
what would I pick as a replacement?
GOOGLE INC-CL A 308.57
CME GROUP INC 182.45
AUTOZONE INC 152.76
MASTERCARD INC-A 142.44

As you can see there are lots of companies still making money but when the leaders in their industry change the DOW needs to replace the old with the new... DOW is a horrible indicator of general market conditions as it only shows what should be the top performers only those top companies have changed...

I'm sorry but you are a little misinformed about stock price relative to profitability and market cap.

For example, Google's stock is at 308.57 as you stated; however, its 52 week high was 602.45. That is a 50% loss off of the high. That is not to say that Google isn't performing well relative to other companies, but an investment in Google of $1 in May of 2008 would equal about $.50 today.

CME is another example easy to debunk. Firstly, its price is 182.45; however, its 52 week high was 526.98. That's what a 65% loss? Furthermore, even though its per share price is 58 times higher than B of A, it has much fewer shares in the float. B of A actually has a higher market cap of 20.10B to 12.10B versus CME.

Autozone's market cap is only 8.78B, and Mastercard's is 18.43B. Bank of America, even at 3.14 per share is still a larger company (by market capitalization) than all the stocks you mention other than Google.

I agree that a Penny Stock like Citi doesn't belong on the Dow; however, the Dow is an excellent indicator of the market's health as these were the 30 biggest, strongest companies prior to the collapse.

If you want to look a broader market indexes, they are actually doing worse than the Dow. S&P 500 has shed 56% since its highest close on October 9, 2007 of 1,565.15.

NYSE index of 1828 companies traded on the exchange has lost 58.4% since its highest close on October 12, 2007 of 10,301.49.

The Dow has shed 53.2% since its high of 14,164.53 on October 9, 2007.

Thus as you can see, the broader indexes are actually doing worse than the Dow. Maybe they are a better gauge of the actual economic health of the USA; however, the Dow is the glamour index, and it is easy for uninformed Americans to follow. You can go all the way back to the Great Depression I on the Dow.

Excellent post finemanm.

Personally I watch the financial collapse via the markets a bit less now and focus more on the economic collapse via the unemployment figures. Course ya gotta wait a couple months for them to 'revise' those numbers.

The DOW, though probably the best known index in the world, is by no means the most important US index. It is however the index that most people have heard of so it's important in that regard. The DOW IMHO is only relevant because of that an nostalgia. It's makeup isn't the 30 largest companies in the US, and it constantly changes. GE, I believe, is the only company constantly listed from inception of the index to present.

Most people seriously interested in markets myself included, pay more attention to the S&P 500 than the DOW as a more important guage of the economy. The S&P is basically the 500 largest publicly traded companies in the US by market capitalization. It much larger, better diversified, single stocks don't pull the whole index like sometimes happens on the DOW, and a much more relevant to the economy. The ETF that tracks the S&P, the SPY, is one of the most liquid and easy to use trading/investing vehicle available.

The Nasdaq is widely followed,but I feel less qualified to talk about it. It's an exchange that used to be mainly tech but is now tech+ pharma+ lots of other stuff.

Many people follow the russell 2k. It's the index of mid-sized compaines and very relevant to the health of middle America.

The Wilshire 5000 is the index of every publicly traded company in the US with easily discoverable price. Many mutual funds benchmark off it.

At the end of the day, for anyone who markets matter to, the DOW is pretty much already an afterthought. We only still talk about it because everyone has heard of it and nostalgia. There is however, nothing to reinvent to replace it. The S&P 500, the Russell 3k (different from the Russel 2k), or the Wilshire 5k already exist and are followed by people with skin in the game more than the DOW already.

BTW the Russel, S&P, and Wilshire are all down over 50% year over year.