What Do The Dow's Daily Swings Mean? Not Much. | WAMU 88.5 - American University Radio
Filed Under:

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

Play associated audio

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 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 U.S. 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 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. To see more, visit http://www.npr.org/.

NPR

'Little House,' Big Demand: Never Underestimate Laura Ingalls Wilder

Wilder's memoir reveals that she witnessed more violence than you'd ever know from her children's books. The South Dakota State Historical Society can barely keep up with demand for the autobiography.
NPR

Coffee Horror: Parody Pokes At Environmental Absurdity Of K-Cups

The market for single-serving coffee pods is dominated by Keurig's K-Cups. But they aren't recyclable, and critics say that's making a monster of an environmental mess. Meet the K-Cup Godzilla.
WAMU 88.5

Maryland's Biggest Campaign Donors Didn't Get Results In 2014

A lot of dollars from big donors went toward Democrat Anthony Brown's loss in the gubernatorial election.

WAMU 88.5

Concerns About Digital Snooping Spur Bipartisan Legislative Push In Va.

Former state Attorney General Ken Cuccinelli and the ACLU are supporting legislation that would limit the ability of law-enforcement and regulatory agencies to collect information and build databases without a warrant.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.