It’s widely quoted, represents the face of the stock market to the masses, and closed at a new all-time high yesterday. But that doesn’t change the fact that the Dow Jones Industrial Average, for all its storied history, is irrelevant.
The observation is unchanged by yesterday’s news that it eclipsed its old high of 11,722.98 set on January 14, 2000 by settling at 11,727.34. Yes, the Dow makes for interesting copy in the newspapers, as a review of the media today reveals. Nonetheless, the hoopla is misplaced. Indeed, the Dow’s ascent into record territory stands alone today among the broad measures of U.S. stocks. Notably, the S&P 500 and the Russell 3000 remain well below their peaks of early 2000.
Ditto for the Nasdaq Composite, the fallen poster boy for tech stocks. In fact, a new high for the Nasdaq may have a long, long wait. Breaching the 5000 level briefly in March 2000, the Nasdaq is still more than 50% below that ancient summit.
The S&P 500 and Russell 3000 are much closer to their previous crests. Nonetheless, equities would have to rally long and hard from here to deliver a new high in these indices, both of which command far more respect and money in the institutional investor community than the Dow. In fact, no one in their right mind would consider using the Dow Industrials as the basis for an index fund for serious money, which is why there’s precious little money attached to the benchmark compared to the alternatives.
The value of the Dow, if one can call it that, is mainly that of an antique curiosity. The world’s first stock index, the Dow Industrials trace a history back to 1884, when Charles Dow began publishing a measure of market activity in the “Customer’s Afternoon Letter,” the forerunner to what would become The Wall Street Journal. In the 19th century, the limitations of technology demanded a relatively simple methodology for sampling equity price changes writ large. The Dow, as a result, is today a prisoner of those archaic confines.
The modern Dow Industrials is the world’s most recognized stock index, but the benchmark exists by virtue of its lengthy history as opposed to any compelling relevance. Looking at the Dow is like peering back into time. This, dear readers, is an index that is bottled in a methodological formaldehyde, preserved for the ages for no particular reason beyond the fact that it’s been around longer than its competitors. Even Dow Jones & Co., which owns the index, has long since recognized the obvious by publishing a modern suite of benchmarks of relevance.