How Do You Measure “the market”?

Jul 2020

…it’s not unusual to read about the overall market being up or down over a given period. However, finding a good way to measure the market isn’t neces­sarily easy, especially in recent years. The Dow Jones Industrial Average (the “Dow”) dates back to the 19th century and remains a popular index to this day. It has some technical problems, and therefore most professionals prefer to use the Standard & Poor’s 500 Stock Index. This index contains 500 of the largest companies in America, and one might think it should provide a reasonable measure of the broad stock market. However, due to today’s heavy concentration of index value in a very small number of companies, it’s harder than ever to argue that the S&P 500 is indeed “the market.”