The obsession with the Dow Jones Index is ridiculous, much like Chicken Little's gloom and doom view about the sky and it's trajectory. The media loves to spout off reports "on the 10" regarding its every movement: "Up 2.. down 288...big gain of 100... big loss of 220..."The wave of numbers is never ending. And it's quite common to get the movement without the total number. If the Dow Jones was 100 and it lost 50, this would be a major movement. But if it's at 10,000 and loses 50, not so interesting.
More importantly, the Dow Jones is a poorly constructed index. It is based on the trading
prices of the 30 included companies. 30. Thirty. Hardly representative of the US stock market! Five hundred companies. Furthermore, the companies trading at higher prices have a greater relative effect on its performance. Regardless of the number of shares outstanding.
A better index for measuring US stock performance is the S&P 500. It is comprised of the largest 500 equities and is based on market cap weights. This means companies are given weight based on how many shares are outstanding -- not the trading price.
The media's not too interested in delving into the S&P -- it is trading somewhere around 900 these days (versus the Dow in the 8,000 range) so the reported numbers are smaller and therefore much less interesting.
A better index for measuring US stock performance is the S&P 500. It is comprised of the largest 500 equities and is based on market cap weights. This means companies are given weight based on how many shares are outstanding -- not the trading price.
The media's not too interested in delving into the S&P -- it is trading somewhere around 900 these days (versus the Dow in the 8,000 range) so the reported numbers are smaller and therefore much less interesting.
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