DOW Jones is Outdated

The largest market in the world, the New York Stock Exchange fluctuates according to popular index funds. The Dow Jones (.dji) and S&P 500 (.inx) are funds which have portfolio's which consist of the most mainstream corporations. These index funds have positions in mega-cap companies, but leave out the small-cap business's. These smaller companies are riskier, but there should be a way of following the ENTIRE market and not just the huge blue chips. All of Wall Street follows both of these index's, if the mega-cap industries go up then so do all of the smaller companies that do not have similarities with the larger companies. All stocks follow the Dow and the S&P because there is no other way to measure how the markets are doing! What the media and the NYSE need to do is disclose information for the total performance for funds in these categories:

Mega-cap: Over $200 billion Large-cap: Over $5 billion Mid-cap: $5 billion to $1 billion Small-cap: $1 billion to $250 million Micro-cap: $250 million to $50 million Nano-cap: Below $50 million Total market (every stock)

This information should not be collected from index funds, but rather information directly from the NYSE. The market being followed and lead according to index funds is a thing of the past. This information organized and provided in such a fashion would be extremely helpful to the market and all of its participants. It would help analysts in the industry make far more educated decisions and we would know how the markets are performing in a much more detailed sense. Everybody playing in the markets according to how an index fund performs is illogical. For the most part the entire market moves according to the price of 30 stocks. The Dow is criticized for being a price-weighted average, which gives higher-priced stocks more influence over the average than their lower priced counterparts, but takes no account of the relative industry size or market capitalization of the components. The closest thing to a broad measurement of how the markets are doing can be followed by the index fund Wilshire 5000 Total Market Index. This index consists of 5,000 stocks,becoming far more common in the media, is watched by major institutions, and the Federal Reserve. This does not change the fact that index funds are not a way to measure the markets sufficiently. It not the 1800's! The NYSE should create it's own market information. The NYSE need to modernize and adapt!

5 Comments
 

Only the idiots on CNBC and non-finance people follow the Dow. S&P is a lot better and I'm a huge fan of the Russell 2000 as well as an arbiter of the economy at large (most companies that make up the economic environment are small)

Reality hits you hard, bro...
 

Sure it's outdated, but it's a leading indicator of where smaller companies are heading (as you said) and it's also just an easy number for people to follow. People have a number like 10,000 ingrained in their head so the common guy on the street can say "wow, the Dow is over 12,000" or "wow, the Dow is down to 10,100." It's just something that stuck with people and it gives an indicator of where the biggest players in the U.S. are.

 

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