What catches the mainstream media’s and the causal stock market observer’s attention is how many points up and down the Dow Jones Industrial Index is each day. Hundreds of points up create feelings of happiness for 401K balances and hundreds of points down create fear and sometimes panic. All that the Dow Jones Industrial Index (DJIA) represents is a composite daily move of 30 of the biggest capitalization stocks that are representational of the diversity of the U.S. economy. Actually the Standard and Poor’s 500 index is a better measure of the stock market as it contains 500 big cap stocks and more diverse sector representation and diversification. There are also small cap indexes and tech indexes that move differently than big caps.
The magnitude of the point moves for the DJIA has also changed with the growth of the valuation of the index and inflation. When the DJIA was 10,000 in the year 2010 a 100 point move was 1% of the index, now with the DJIA near 25,000 a 250 point move is the new 1%. It now takes a 500 point down move for a 2% decline while back at 10,000 DJIA it only took a 200 point down move for a 2% decline. DJIA points are not what they use to mean, so the next time you see the market is down 500 points it represents a 2% decline and even 1,000 points is a 4% move. 5% percent pullbacks are normal for the stock market even during bull markets. 10% corrections also happen in most years. We have been spoiled with the straight up trend since November of 2016 but the market will fluctuate. Welcome back to reality and manage your emotions to react to your trading and investing results in correlation to the real percentage move and your long term plan not the amount of points the DJIA is up or down on any random day. DJIA points aren’t what they use to be.
