The Dow Is NOT The Economy

In a headline oddly lacking in capitalization, Reuters complains: Dow sees worst day in two years as bond yields jump. The chuckle-inducing 666 points lost in the DJIA gave anti-Trump forces something to cheer about. After a year of Trump lying that the record Wall Street profits were due to his presidency, liberals all over the country laughed at the “biggest daily percentage loss in 20 months”.

But they fell for the same misconception that Trump did, and in fact reinforced it.

1. The stock market is NOT the economy.

2. The Dow Jones Industrial Average is NOT the stock market.

According to Bloomberg (here), only about 45% of private sector workers have ANY employee-sponsored retirement plan (usually 401k plans, the only way most Americans interact with the stock market) “and the lower-income workers in Trump’s political base are the least likely to hold money in such an account”. Less than 15% of all U.S. families directly own stock.

Stock ownership is heavily weighted in favor of the upper class (source):

“The rich are far more likely to own stocks than middle or working-class families. Eighty-nine percent of families with incomes over $100,000 have at least some money in the stock market, compared with just 21 percent of households earning $30,000 or less, a recent Gallup survey found.”

– citation

Not only that, but the DJIA is something different than the stock market, something that news outlets try really hard to overlook. They use these phrases interchangeably: “The Dow is up” and “The economy is doing well”, despite the absurdity of it. Not only is the Dow representative of only 30 companies, but it isn’t even an accurate indication of those companies’ stock prices. It’s a price-weighted, scaled average of the stock prices of those 30 companies (listed here). If those 30 companies hold relatively steady, then the DJIA holds steady too, regardless of what happens in the rest of the market.

The upward trend in the Dow average — which began about eight years ago and only continued during Trump’s presidency — does not reflect employment figures, average or median salary, or the wealth of the average U.S. citizen. In the same way, the recent dip in the DJIA does not reflect anything about the U.S. economy — except the price-weight, scaled average of the stock price of only 30 companies.