Current Weather
The Spy FM

What Do The Dow’s Daily Swings Mean? Not Much.

Filed by KOSU News in Business.
February 9, 2012

Turn on the news on any given day, and you’re likely to hear about the Dow Jones Industrial Average. It is the most frequently checked, and cited, proxy of U.S. economic health. But a lot of people–maybe most–don’t even know what it is. It’s just the stock prices of 30 big companies, summed up and roughly averaged. That’s it.

And what does the daily movement of this number have to do with the lives of most Americans? Not much.

“In 2011, we had days where it would go up several hundred points, and the next day it would go down several hundred points,” says John Prestbo, editor and executive director of Dow Jones Indexes. “You can’t really argue that the mood and outlook of the entire country was changing that rapidly.”

Prestbo himself doesn’t even check the Dow every day.

He says the Dow Jones Average is great for a very specific purpose: to get a long term sense of how the leading US companies are doing. But its moment-by-moment, even day-by-day movements are meaningless. It wasn’t designed to be used that way.

In fact, Charles Dow, who created the Dow Jones Average in 1896, didn’t bother to comment on his own metric more than once a month.

So what happened? How did we develop this 24-hour fixation on the Dow? Blame the Panic of 1907.

This was a severe recession. Banks were collapsing. Everyone was trying to make sense of a disastrous economy. They wanted some handy metric that could tell say what each day’s news meant.

“So they looked around,” Prestbo says, “and they found the Dow Jones Industrial Average. It took on a life of its own, shall we say.”

Newspapers started referring to it. Then, during the Great Depression, it became a daily requirement.

Now, of course, we can follow it every second of the day. We are confused and want to know what the latest scary or hopeful economic news means. So, we look around, and there’s still this one thing available, it always has an answer for us, even if the answer doesn’t actually mean anything. [Copyright 2012 National Public Radio]

Leave a Reply

9PM to 5AM The Spy

The Spy

An eclectic mix of the Spy's library of more than 10,000 songs curated by Ferris O'Brien.

Listen Live Now!

5AM to 9AM Morning Edition

Morning Edition

For more than two decades, NPR's Morning Edition has prepared listeners for the day ahead with two hours of up-to-the-minute news, background analysis, commentary, and coverage of arts and sports.

View the program guide!

9AM to 10AM The Takeaway

The Takeaway

A fresh alternative in morning news, "The Takeaway" provides a breadth and depth of world, national and regional news coverage that is unprecedented in public media.

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center