What Is the Dow Jones, and What Does it Mean?

Economist Vern Myers explains what the Dow Jones Average is, and why it may no longer be a reliable indicator of the state of the economy.


| September/October 1983



bear-bull-stock-market

Is the Dow Jones Industrial Average really a good indicator of the stock market's future?


PHOTO: FOTOLIA/HFOX

This column has—upon several occasions over the past years—taken the opportunity to pass on the thoughts of Vern Myers, whose newsletter (Myers Finance & Energy) is among the most widely respected of the "alternative" economics publications. And, following the recent dramatic movements in the stock market, we've noticed that the more traditional commentators—be they speaking on television or radio, or writing in newspapers or business magazines have taken to discussing the Dow Jones Average as if it were a creature with an intelligence of its own, and one that could decide to bless investors with fortune or damn them with ruin at any given moment. Well, with that sort of attitude going around, we thought it might be valuable to take a look at just what the Dow Jones is, and where its "intelligence” comes from. To do so, we've turned to the work of Vern Myers once again, and are pleased to offer this essay from the June 10, 1983 issue of his newsletter. The article cited below has been reprinted with the permission of Myers Finance & Energy.  

Great numbers of analysts will tell you that the Dow Jones is the infallible prophet of what is coming up in the economy. This is another one of those axioms that is accepted without much thought and with practically no analysis.

The idea ought to be examined from three standpoints. (A) What happened the last time the Dow Jones predicted a booming economy? (B) Just what is the Dow Jones? (C) What are the components of the Dow Jones?

The rising Dow Jones of 1929, according to its disciples, had to be predicting that they were running into a great accelerated economy—that the decade of the thirties would be the economic bonanza of all times.

Well, it didn't happen. In fact, the opposite happened.

What is the Dow Jones made up of?  





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