what's a better measure for the health of the economy? Dow or S&P500? or other?

[BlahBlahYouToo]

seems like most people base it on the dow, but why?
30 companies vs. 500? s&p500 would make more sense to me.

 

[ElFenix]

dow isn't even an index.

the problem with indexes, though, is that they are too heavy in overvalued stocks and too light in undervalued stocks.

prob is the only way to be 100% on what is over or under valued is hindsight. and even that probably isn't 100%. (of course the efficient marketeers would say nothing is under or over valued)

 

[darkxshade]

The dow, s&p and all other indices is not a measure for the health of the economy it's a measure of reaction to the health of the economy.

 

[Crono]

Unemployment.

 

[halik]

GDP growth

 

[BlahBlahYouToo]

Originally posted by: darkxshade
The dow, s&p and all other indices is not a measure for the health of the economy it's a measure of reaction to the health of the economy.

and when they see these indices fall, people's perception is that the economy is doing bad, adding a spiraling effect.
chicken and the egg situation.

 

[mshan]

Dow is price weighted index of 30 stocks.

S & P 500 is market capitalization weighted index of 500 large cap stocks (typically represents about 70% of total US stock market capitalization).

 

[LS8]

Originally posted by: BlahBlahYouToo
what's a better measure for the health of the economy? Dow or S&P500?

Neither.

 

[darkxshade]

Originally posted by: BlahBlahYouToo

Originally posted by: darkxshade
The dow, s&p and all other indices is not a measure for the health of the economy it's a measure of reaction to the health of the economy.

and when they see these indices fall, people's perception is that the economy is doing bad, adding a spiraling effect.
chicken and the egg situation.

The keyword being perception... perception != an accurate measure of economic health and thus all indices can never be an accurate measure of economic health in that regard.

 

[speg]

Originally posted by: halik
GDP growth

QFT.

 

[ggnl]

Unemployment
GDP growth
Inflation

The stock market is famously irrational.

 

[UglyCasanova]

Originally posted by: ggnl
Unemployment
GDP growth
Inflation

The stock market is famously irrational.

I would say a look at these 3 would be a better indicator of the health of the economy.

 

[Tiamat]

unemployment

 

[dullard]

Originally posted by: ggnl
Unemployment
GDP growth
Inflation

The stock market is famously irrational.

I'd add on government deficits to that list. Why? Because a government could purposely run a massive deficit to pay employees for tasks that aren't really needed or useful. The result is that unemployment falls and GDP growth soars unnaturally. In the end, you just borrowed money for today's gain while ignoring tomorrow's pain.

In other words, if the government is running a massive deficit, the economy isn't nearly as good as it would otherwise appear. The reverse is true in the rare case of a government in surplus (the economy looks worse than it really is).

Think of a family. If the family is running a deficit (say with credit card debt), then the goods and services that the family is currently enjoying does NOT represent their true economic well-being. At some point, you have to stop borrowing.

While the stock market is quite irrational short term, in the long term it is a fairly decent indicator of the economy (there are better indicators, but it isn't that bad). The S&P with 500 stocks would of course be a better indicator than the DOW. Remember though, stocks are an indicator of what people think the economy will become. Not what the economy currently is.

 

[blinky8225]

Originally posted by: BlahBlahYouToo
seems like most people base it on the dow, but why?
30 companies vs. 500? s&p500 would make more sense to me.

You would think so, but over the long term, they are virtually the same.

Apparently, it achieves 95.5% correlation to the S&P500.

http://seekingalpha.com/articl...-correlation-to-s-p500

 

[PhoenixOrion]

Five parameters as key indicators to the economy:

1. Real GDP (inflation-adjusted)
2. Industrial Production
3. Employment
4. Personal Income (less transfer payments)
5. Wholesale/Retail Sales (adjusted for price changes)

Per National Bureau of Economic Research.

 

[rchiu]

Originally posted by: BlahBlahYouToo
seems like most people base it on the dow, but why?
30 companies vs. 500? s&p500 would make more sense to me.

If you wanna use an index to measure the economy, S&P500 would be the way to go. Dow contains too few companies to be significant. People talk about Dow because it's the older index and back then when the stock market was composed of fewer companies, it was actually significant.

And S&P500 is one of the leading economic indicator for those who think it's not a measurement of the economy.

 

[BlahBlahYouToo]

The U.S. economy, more so than other worldwide economies, is largely based on how investors and, ultimately, consumers, feel. Typically, we measure economic strength or weakness using the GDP, or Gross Domestic Product, which is historically thought of as the broadest measure of economic activity.

But, while GDP may be a good measure of the whole economy, how you feel affects how you spend, and that's what really matters in this economy.