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Financial Columnist: Dow Jones Has 'Enormous Mind Share' But Little Significance


As the stock markets opened today, the Dow Jones Industrial Average was running at just over 19,885.  If things go especially well today, it could very well finish over the 20,000 mark for the first time in history. 

This may seem monumental, but award-winning Washington Post financial columnist and Marketplace Morning Report contributor Allan Sloan says not to get too excited.

The Dow represents the added prices of 30 large companies' stocks divided by the Dow divisor, which has up to 16 digits, according to Sloan. To simplify, he says each dollar change in any of the Dow stocks equals roughly 8.4 points.

Sloan says the Dow, which has tracked stock prices since 1896, is an extremely outdated measure but yet, he adds that it has "enormous mind share."

"People have grown up with it," he says. "It's reported on all the news shows and the S&P, which is sort of boring and the number is somewhere in the 2,200s - it's a hundred times more important than the Dow. But outside of the financial world, nobody pays any attention to it."

His recent article in the Washington Post points out that the Dow gets the most attention because of tradition. "If you started the Dow today and it hadn't existed, and you set it up this way, no one would ever hear of it again," Sloan says.

The moment the Dow hits 20,000 will be ceremonial, but at the end of the day it's the companies that make up the Dow and the S&P that are most important, says Sloan.

"They're the biggest companies in the United States," he says. "They have a huge influence on what goes on here and the average of the Dow means really nothing...If the S&P does well, the wealth of a whole lot of retail investors goes up."

Audrey is a WUWM host and producer for Lake Effect.