[schwarrrtz]

Relevant episode of Planet Money:

http://www.npr.org/sections/money/2017/01/04/508261371/episo...

"It's no secret that we here at Planet Money think the Dow is a terrible economic indicator. We don't like that it only looks at thirty companies. We don't like the way it does its math. We think it does a bad job reflecting the overall economy. Honestly, we're not sure why everyone is still talking about it."

[tempodox]

> Honestly, we're not sure why everyone is still talking about it.

It's like telling a compulsive gambler their favourite “system” won't predict luck. They just don't want to hear that.

[hueving]

Not really, it's not predicting the future like a gambling system. It's just a measurement people are familiar with because they have reference points in mind.

[kazagistar]

The phases of the moon are also a familiar measurement system for which people have reference points in mind.

[grogenaut]

The phases of the moon are pretty good for predicting moon rise, moon set, time of month, days of the year, days, and the tides.

[paulpauper]

Terrible? Hyperbole. The 30 companies are pretty big and relevant, so still it works out well. Also, the DJIA pays a sightly larger dividend than the S&P 500. Also it's not an economic indicator.

[kcanini]

> it's not an economic indicator

Can you explain this statement? It's almost synonymous with the stock market, and is one of the most common headline numbers that people mention in business and economy news reports.

[acchow]

The stock market is not the economy.

[pyromine]

Capital markets are crucial indicators of economic activity

[milesrout]

Only because we use them as indicators of economic activity.

When stock markets plunge people panic and that panic is what causes economic instability. That's what causes issues. Economics is purely a product of human minds acting in unison or opposition.

[dnadler]

I think it's the other way around, no? People panic, and then sell their equity.

[paulddraper]

It basically is. It represents the state of capital investment, which as it is turns out is important in a capitalist economy.

The stock market would not be the economy in say, a Marxist system.

[srssays]

For a counterexample see Brexit. The FTSE 100 went up after Brexit, when other economic indicators were negative, because it primarily contains large multinationals which are insulated from the local economy.

So a stock market index is only correlated with the local economy if there are few multinationals.

[pacaro]

Well, arguably the FTSE went up because the pound plummeted.