Home 2021 The Dow Jones Industrial Average, is it Still Relevant?

The Dow Jones Industrial Average, is it Still Relevant?

#DJIA #Dow


Some analysts are saying that once the VirusCasedemic is over, the Dow will no longer be the Key indicator of the US economy’s health, personally I do not believe that it has been for 10yrs” — Paul Ebeling

The Big Q: Is this is the End of the Dow Jones Industrial Average?

Recent market performance

  • The overall US stock market roars but, the DJIA falls, as the tech-heavy NAS Comp soared. This level of divergence seen in September 2020 has happened in the Nasdaq’s history. Does this mean that the Dow will no longer be a good proxy of the US economy on the other side of this medical emergency chaos?

What is happening is that investors have realized that the Dow is a terrible proxy for the US economy.

The NAS 100, with its emphasis on innovation and technology now presents a better indicator of the modern, post-VirusCasedemic chaos world.

The Dow Jones index was created by Charles Dow in Y 1896, it was intended to act as a “proxy for the broader U.S. economy.”

But the Dow is deeply flawed. Professor Jeremy J. Siegel at the Wharton School sums it up saying, “No one would build a stock market index that way today… It’s a crazy way to measure the market.

The Dow contains just 30 companies, with some sectors of industry completely excluded and has not been upgraded since Y 1991.

Worse, the index is weighted by share price instead of market cap, which means 1 company, Boeing (NYSE:BA), has a wild outsized sway on the entire stock market.

Enter the NAS Comp: The Modern Economy

The VirusCasedemic chaos and the enduring lockdowns has fast-tracked innovation. And will transform the world around us, not through slow adoption, but through necessity.

Bio-tech will flourish and therapeutics projects will get increase funding., as legacy pharma gets relegated to the the sidelines.

Main Street is being decimated as commerce shifts to online. Direct-to-consumer models may soon be the new normal. Just look at who is hiring now, that is a Key gauge.

“Personally, I do not rely on the Dow Jones Daily Averages (Index) for I think it is irrelevant and very outdated as a professional investor and advisor. So that you know, As background for those who do not know, The Dow Jones Composite Average is primarily made up of large market capitalization stocks, with a few middle capitalization and small capitalization companies included. 57 of the 65 components of the average are traded on the New York Stock Exchange, with the 8 others being traded on the NASDAQ. 

Also interesting to know is that The Dow Jones Industrial Average’s components have changed 57 times since its inception, on May 26, 1896 where it was originally composed of only 12 companies.

Today, the negative of the Index is that the list of companies contained therein is sorted by each component’s weight in the Index. The weight of each company is determined by the price of the stock. A $100 stock will be weighted more than a $30 stock. If a stock splits its corresponding weighting in the Dow Jones will be reduced as its price will be about half of what it was prior to the split. 

“More important to me is the Russell 2000, The NASDAQ 100 and the S&P 500 which collectively present a better composite of the US economy. 

Also, I look closely at the inflation rate for food versus the reported inflation rate by the Fed which is purposely understated in my opinion by at least 2+ times in its most recent report plus the unemployment numbers to see where the direction of the economy is headed.

Another good indicator for me  is the direction of the US Dollar for it tells me the capability for our exports which is an additive to our employment and extremely important to the average American family,” says international economist and LTN editorial contributor Bruce WD Barren

Next, we will look at the S&P 500 and the Russell 2000. Stay tuned…

Have a healthy week, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.