I've always felt that the stock market is like the tip of the iceberg when it comes to relevant economic figures. However, I think that this small tip has quite the Pareto effect, in that it is a small portion of data yet has such a large impact on the perceived state of the economy, perceived by essentially anyone that I have seen discuss these matters. It seems to me that the average American is told or influenced to believe it is a strong economic indicator because of its prevalence in reported figures, and for this reason and this reason alone it becomes a much larger indicator of the economy than should be. It's like a feedback loop, whereby the influence it has is only caused by the perceived influence it has.

And yet to attempt to break away seems to be useless because even if it isn't an all encompassing indicator of the state of the economy, this is what it has become, and therefore it is.

This is un-researched opinion and speculation and not sure if it addresses exactly what you meant, but I do believe that this is the psychological effect that the media has on the mass audiences when it selectively publishes certain things.

I'll gladly clarify if I was unclear and anyone is interested.
Source(s):
http://en.wikipedia.org/wiki/Pareto_principle

Permalink | Report

DOW is the Barometer of the U.S. Economy and most quoted indicator of stock market performance due to this supreme longevity.
Economy is the number one priority on everybody's list and the channels think, viewers will not change the channel, as long as they see DOW constantly!
http://www.bloggernews.net/wp/wp-content/uploads/2006/10/mike-peters-cartoon.bmp

On May 26, 1896, Charles Dow simply added together the values of twelve different stocks and divided by twelve to arrive at the Dow Jones Industrial Average or DOW.
Today, DOW is the average of these 30 stocks:
3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron, Citigroup, Coca-Cola, DuPont, ExxonMobil, General Electric, General Motors, Hewlett-Packard, Home Depot, Intel, IBM, Johnson and Johnson, JP Morgan Chase, Kraft Foods, McDonald's, Merck, Microsoft,
Pfizer, Proctor & Gamble, United Technologies, Verizon, Wal-Mart, Walt Disney.
The DOW has stood the test of time through one Great Depression, two World Wars, Cold War, hyperinflation, impeachment, savings and loan crises, recession, and credit debacles. The Dow is by far the most quoted indicator of stock market performance due to this supreme longevity.
Source(s):
http://www.associatedcontent.com/article/1560711/the_dow_jones_industrial_a...

Permalink | Report