As today marks the 20th anniversary of the 1987 Wall Street crash, I would like to know which stock exchange index best reflects the American Economy and why? The Dow Jones Industrial Average, the S&P 500 or the AMEX Index?
2007-10-19 12:11:37 · 3 answers · asked by Harry Hayfield 6 in Business & Finance ➔ Investing
Neither measures the economy -- they both measure stock market returns. They are not the same thing. GNP measures growth of the economy.
It could be argued that the DJIA is better at explaining what is going on with blue chip companies and the S&P is better at telling what is going on with the broad market. However, the correlation between the returns of the two indices is over 0.95 -- so they both tell the same story.
2007-10-19 16:17:56 · answer #1 · answered by Ranto 7 · 0⤊ 0⤋
None of them precisely measure the entire economy because that's not what they were intended for.
The Dow represents just a handful of very large, mature, stable companies that have been around a very long time. The S&P 500 is roughly speaking 500 of the biggest companies on the NYSE and Nasdaq. And the AMEX is the least important of the big 3 US stock markets.
As such, they only represent a view of the stock market, and for the Dow and S&P 500, only the largecap side of the market at that. Since the whole economy is much bigger than the stock market, and the market is much bigger than just the largecap part of ... well, I think you can see where that leads.
2007-10-19 12:27:59 · answer #2 · answered by enoriverbend 6 · 0⤊ 0⤋
The S&P 500 because it contains the top 500 companies in America and is a much larger sampling of the economy.
The Dow only contains 30 stocks.
2007-10-19 12:27:17 · answer #3 · answered by Anonymous · 0⤊ 0⤋