The Dow Jones Turnaround
by Tushar Mathur - October 14th, 2009The American marketplace in spite of the ongoing recession has gathered certain momentum in the last few months. The impact of the American economy on the global markets is well recognized. The economic measures undertaken by the current government to grease its economy has been well received by the markets. The DJIA gained +50.68% in the last 7 months irrespective of the global turn down. It touched the lowest close in the last 5 years on 9th March this year and by now it is pushing the 10000 mark which is for the third time in its history it is going to touch. The first in 2000, then after a correction it crossed the mark again in 2005. In 2007 it rose to touch higher levels at 14093. The fact is that DJIA touching 10000 in a time when the global economy led by the American economy is going through a tough time and is often considered with the great depression of the 1930s. Even worst than that, we have witnessed large financial institutions, banks wiped out. Even some large corporations had the same fate. Some of them are bailed out through Federal Reserve and US government. Others were either merged or liquidated. Retail sales, housing, hiring came to a record low. So we can say it is not at all the same phenomenon when it had first crossed the golden mark. What is it? Optimism in anticipation of recovery? Bounce back for shorter period within a recession? There is lack of interest of the public participation till now. The expert economic and financial analysts are not in favor that the US & global economy has turn around and the good times has arrived. Probably next year end will see that. None the less the stock market many times move ahead of the economy.
The DJIA is composed of 30 great American stocks. It has a great history but it has failed to depict the overall market picture for long. Look at the S&P500. It is giving a much fairer picture for over the last 20 years because it is much broad based. Dow is price weighted but the S&P is market value weighted. The signals of turnarounds and turn downs are much well represented and it is the American index which has become the benchmark.
May be it is the turnaround point may be it is not. Dow pushing for the 10000 mark is not so significant to rejoice. Caution must be undertaken and the performance of broader based index like S&P500, Russell 2000 index etc. along with sectoral indexes should be taken into account.