Saturday, January 06, 2018

Missing The Point

The Dow Jones rose another thousand points, much to the delight of pundits who think that overpriced stocks are good for the economy. As usual, the media reported the increase in a manner which made the one thousand point increase seem more dramatic than it actually was, with Market Watch telling us that the rise occurred, “in a blistering 23 trading days, which would represent the fastest rally to such a mark, outpacing the 24 sessions it took to ascend to 21,000 last March and the move to 11,000 back in May of 1999.”

But what was the increase in the value of the stock index in terms that have actual impact on the value of the stock market? Well, this month’s increase was 4.2% in 23 days, amounting to 0.18% per day, which is a little less exciting than the “blistering pace” they described.

The increase last March was a 5.0% increase in 24 days, or 0.21% per day, which means that the current increase did not “outpace” that March increase. The current increase was actually smaller than the earlier one, and it gets worse for Market Watch.

The increase in May of 1999 was a whopping 10% increase in 24 days, or 0.42% per day, meaning that it had twice the impact on stock values as did the one in March of this year and more than twice the impact as did the current one.

The media gets all excited about each “one thousand point” marker in the index, but that is hardly very informative. As the market index becomes larger, each thousand points becomes a smaller and smaller indicator. Here they are citing three such indicators, and are presenting the least impactful one, at 4.2%, as being more dramatic than an earlier one that was just one day longer and, at 10%, had more than twice the impact.

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