Why we care so much about the Dow, the stock market’s dumbest index

The Dow Jones Industrial Average is, at best, an imperfect barometer of stock market activity among a narrow band of very large US companies. It’s clunky, and too limited in scope for any Wall Street pros to pay serious attention to it. 

The Dow Jones Industrial Average is, at best, an imperfect barometer of stock market activity among a narrow band of very large US companies. It’s clunky, and too limited in scope for any Wall Street pros to pay serious attention to it. Nevertheless, the Dow persists. When the Dow hit the 40,000 mark on Thursday, the news was splashed across most major TV news chyrons and websites, that comforting whole number telling the world that something good is happening. Maybe you’re not quite sure what it means. But you know it’s up, and up is better than down. “Mention ‘the Dow’ and, to most people, that means the stock market,” said Art Hogan, chief market strategist at B. Riley Financial, in a note to CNN. It’s an “instant way of telling the world which way the market is moving, even if the average isn’t an accurate measure of the thousands of stocks listed on the nation’s exchanges.” While most professional investors look at the S&P 500 — a much broader measure of what’s happening on Wall Street — everyday Americans look to the Dow. The number of Google searches for “Dow Jones” is always higher than the searches for “S&P 500,” said Nick Colas, co-founder of market research firm DataTrek. “If you’re not an investor, you know that a rising stock market means the economy is decent, and you probably have less of a chance of being laid off,” Colas said.