Dow Jones.... useful market indicator or market manipulator?

[ulTRAX]

Dow Jones.... useful market indicator or market manipulator?

We're bombarded daily with what we're told is the single most important indicator of stock market performance... the Dow Jones Industrial Average. Those on the Right who favor SS privatization use it to "prove" that the historic trend of stock prices is always up.

Yet as an indicator it's hardly scientific. It cherry picks companies that are healthy and failing ones are taken off the list. Check out this history: http://djindexes.com/mdsidx/downloads/DJIA_Hist_Comp.pdf
Here's the list from 100 years ago:

Amalgamated Copper
American Car & Foundry
American Smelting & Refining
American Sugar
Colorado Fuel & Iron
National Lead
Peoples Gas
Tennessee Coal & Iron
U.S. Rubber
U.S. Rubber first pfd.
U.S. Steel
U.S. Steel pfd.

One can only imagine what the DJIA would be if failing companies that were going bankrupt were not taken off the list... it would drag the Dow down into oblivion. Yet by ever changing the list, it makes the DJIA so unscientific as to be a joke.

So knowing that stock prices are based on a tiny percentage of a company's stock for sale on any given day... is the Dow used to manipulate the market by presenting the average of the cherry picked stocks? Does it create more demand for those companies listed on the DJIA? Why is it used by the media as opposed to the S&P500... which also cherry picks but includes more companies? There's an even broader index which includes all traded stocks... but by definition it excludes companies that have gone bankrupt.... therefore skewing the index higher.

Those who opposed SS privatization have to be prepared to counter the Right's propaganda machine that the market = free lunch. And that means questioning these sacred indicators.

[StephanieMarie]

1. People should really watch the S&P 500 index

which is much more stable and indicative.

[ulTRAX]

2. there's still problems with the S&P

All these indices exclude companies that were once on the list and have gone under. So there's already a built-in bias. The S&P also suffers from the cherry-picking problem... who to chose for the list... and I believe not all companies are weighed the same.

[Newsjock]

3. It's become a counter-indicator to most Americans' lives

It wasn't always this way, but a rising Dow now indicates that average Americans are doing worse -- saving less, losing spending power, cutting their standard of living.

This happened when corporations lost their last vestiges of social responsibility.

That's why I cringe every time the breathless business reporters come on the radio "with the latest at :25 and :55 past the hour," talking about "another great day for the Dow" and assuming that such news is good news for most of us. Sure, it's good news for the traders, brokers, and wealthy -- but for those of us who are living paycheck-to-paycheck and heavily in debt, all we see in a rising Dow is that our work is increasingly fattening someone else's bank balance.