Making Small Talk about the DJIA

In late December, the Dow Jones Industrial Average hit its all time high. The ebb and flow of this stock market index is often cited in the media, but it’s not largely relevant to most in the financial markets.

At a holiday gathering a couple of weeks before this record rally, I commented to a fellow partygoer, “Wow, the Dow took a big hit today.” The person kindly responded with an innocuous comment that went something like, “Yeah, it does that occasionally.” Ouch.

While they are highly correlated, on any given day market indices can rise or fall at very different rates. Regardless, the performance of the Dow always seems to make news, even if it doesn’t change how or what we invest in. It’s become a handy shortcut for people to feel like they are keeping abreast of the financial markets. Even those who don’t participate in the markets or understand investing concepts are often familiar with the status of the Dow.

What my conversation partner left unsaid is that indices are relevant to such a small extent to the average person, it doesn’t even make sense to bring it up at a cocktail party. Lesson learned.

Additional resources:

• Dow Jones Industrial Average overview
• Comparison graph of three indices: the DJIA, Wilshire 5000 and S&P 500