Originally published at: https://boingboing.net/2020/02/28/coronavirus-wall-street-ends.html
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I figure it’s going to get a lot lower. I just don’t know how long it’ll take. At some point schools are going to close, businesses are going to close, people aren’t going to travel, eat out or spend money on many of the things they normally do, and the economy is going to take a big hit.
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Wouldn’t the headline talking about the‘worst weekly loss be more accurate (and impactful) by including, ya know…the amount of that weekly loss? ‘2700+’ and not just Friday’s loss?
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Luckily, knowing people rely on the sweet relief of alcohol in times of trouble, I wisely divested from all S&P and Dow index funds and put my money in Corona beer stock.
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Those gosh-darned Democrats must be at it again.
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The actual number of points dropped on the Dow is meaningless information. Obviously, people who are much better at math than I realize that a 3000 point drop from a starting level of 30,000 is a 10% loss. A 3000 point drop from a starting level of 6000 is a 50% loss. Kinda different, eh?
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Its worse than that- the Dow is a meaningless indicator that the media has been clinging to for over a hundred years, but that no serious economist uses. It’s a cross section of companies that hasn’t reflected the nature of our economy for generations. Maybe it never did, because it was made up by a bunch of robber barons who thought they were the universe and always would be. Source: Planet Money has a couple of great rant episodes about how stupid “the Dow” is. We need to drop it. The S&P 500 on the other hand, apparently is a reasonable market index to use for this sort of analysis.
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True enough. All of the different indexes have a story to tell. Nasdaq, Russell 2000, Dow, S&P 500 all measure different parts of the business world. Value, growth, momentum, large cap, small cap, mid-cap, energy, financial, tech, communications, commodities, manufacturing. The complexity is what makes it interesting enough to try to tease out real, useful information. The daily coverage media is universally terrible and often irrelevant.
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I mean, OK, sure, but also it’s not as if the DJIA is complete horse shit. It often follows the same general trends as everything else. I prefer to look at the S&P 500 too, but:
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Worse than that, stock prices are at best a fairly poor measure of how the economy is doing. They have a few things to recommend them:
They are a future-looking consensus measure made by people voting with actual money. But the main reason that they are so overused is that they are available in real time, so they give the press something to talk about ever day. Set against that the facts that most people, and much of the economy is not directly affected by and has little effect on stock prices. Stock prices are more influenced by the availability of money to purchase stocks than on the underlying performance of the companies that are being bought and sold. More money to buy stocks mean higher stock prices which in turn mean that future earnings and dividends cost more to purchase today. Estimates of future earnings are arguably a second order influence on prices. And while they are made by people voting with actual money, many of the people making buy/sell decisions are not voting with their own money, which makes them minimally exposed to the downside so there is all the more reason to pump up prices.
Of course and the rich believe that they are a good measure of the economy because their wealth levels have more to do with stock prices than employment levels or wages or the rest of the economy that affects most of the population. Rising stock prices are more of an indication of the increasing concentration of wealth than evidence that the economy of making tangible stuff and selling it is doing well. Equities are a good measure of 1%ers economy, not ours.
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For sure. I almost said that as well, but stepped back a bit because I’m not an economist, and if nothing else, the stock market is an economic indicator because people think it is. When it’s “down” people change their spending habits, worry about their jobs, etc. That’s silly of course, because the market cap of some distant company has no bearing on an individual’s life, but the media and the wealthy have trained everyone to believe it matters.
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It affects a lot of people’s retirement savings.
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…which matters if you’re among the small number of people in the world who both have retirement savings in the stock market, and are very near to retirement who will need that money within the next few months. Your aggressively pedantic point has been made. #NotAllIndividuals. Got it.
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Whoa.
About 50% of American adults have money in 401k or IRA savings plans, and a huge chunk of those savings are in the form of equity.
When the market drops, a lot of people worry about their retirement savings.
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Of course even in the best of times with the stock market the median amount of those retirement savings is a pittance, less than a year’s worth of income. I have to think that people don’t worry nearly enough about their retirement savings in good times or bad.
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Any collection of stocks large enough will go down when the market goes down. That doesn’t make it a useful indicator of the health of the economy. The point is that the Dow is (and arguably always was, according to economists) a non-representative cross-section of companies.
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I never said people don’t worry. The people who should worry is much smaller than the number you quote because they are a long way from retirement and blips like this happen all the time. I was citing the amount of people actually materially affected by a short term market correction. I stand by the statement that it is small.
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All the major indicators usually tend to track together. That makes any of them as good of an indicator as any other. If the DJIA tracks the S&P 500 then either is a fine indicator. It still means it’s dumb to report changes in “points” though. But I mean, geez:
Are they identical? No. But if you only used one as an indicator and not the other, it wouldn’t really matter that much which one you picked.
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