I’m not a fan of the Dow Jones Industrials index(or any of the other Dow indices, for that matter). It was a brilliant step forward when it was invented a century ago. But it was created in the pre-computer world . This is a problem in two respects:

–although it has changed radically since being acquired by Standard and Poors, it is still to a great degree a rear view mirror look into the world economy. Its bones are in the pre-WWII era, when–much like a market in an emerging country–stocks were mostly for the wealthy and mature businesses, steady earnings and dividends were the order of the day. If the S&P and NASDAQ give a look into 2022, the Dow is a picture of, say, 1990

–member stocks are weighted by the price of a share of stock, not the total market value of the company. So if it were in the Dow, Amazon, at around $2800 a share would have 10x the weight of Microsoft, trading at about $280, even though MSFT is about 50% larger then AMZN. The only virtue of the way the Dow is calculated that I can see is that the index is easy to figure out with pencil and paper. Essential in 1896, weird today.

Generally speaking, the main usefulness of the Dow for me is the clear signal it sends that the user knows next to nothing about stocks.

Prior to S&P taking control of Dow Jones and trying (very successfully) to make the Dow behave more like the S&P 500, the Dow did have a practical use. If the Dow began to outperform the S&P, you’d know a market advance was getting long in the tooth. (In many cases, and among the various currents swirling around trading at any given time, there’s a progression during a bull market from the smallest, purest beneficiaries of economic strength that progressively widens out to include more and more partial beneficiaries. The Dow beginning to outperform the S&P, the most stodgy moving better than the rest, was a signal that the final stones were being turned.).

That didn’t happen last year as the market began to turn away from the stay-at-home darlings of 2020. Since 2022 began, however, the Dow has begun to outperform the S&P as the market decline deepens. Ytd, the Dow is down by 9.5%, the S&P by 12.5%, NASDAQ by 19.5%.

In other words, the biggest and most conservative stocks have been outperforming the rest over the past 2 1/2 months, for the first time in at least five years. Maybe the “new” Dow has become a signal of the market bottoming rather than topping. If so, we should study the Dow vs. S&P relationship carefully for signs of relative strength by the latter. If nothing else, it gives us something to do while we wait for the current storm to pass.