Oct 10, 2008 5:22 pm US/Central
Dissecting The Dow
What Exactly Is The Dow? And How Does It Work?
CHICAGO (CBS) ―
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Traders and Specialists work the trading floor of the New York Stock Exchange before the closing bell as the Dow Jones drops Tuesday, Feb. 5, 2008.
David Karp/AP
We hear about the Dow every day, whether it's up or down, and by how much. For many of us, the wild swings of the Dow over the past few days have led to similar mood changes.
But as CBS 2 Chief Correspondent Jay Levine reports, many of us don't know exactly what the Dow is, or how it really works.
But you may be wondering what exactly the Dow is, and how it really works.
"Dow is just - - to me it just means what the stock market is doing…" Ross Norman said.
And Melvin Jones summed it up well in saying, "Not sure what that means, but the way things are looking, it's terrible!"
The Dow is a 100-year-old weighted average of selected stock prices, chosen to gauge the performance of big U.S. stocks. Right now, three of the 30, Boeing, Kraft and McDonald's, are Chicago-based. In some cases, as the Dow goes, so goes the economy.
"It's a predictor but the market is a volatile place and tends to overshoot on the upside or downside," said Morningstar analyst Paul Larson.
That's in part because it's not only the economy at work here, but emotion and human nature play a role, too.
"The Dow goes down, people get nervous," said Larry Levin of secretsoftraders.com. "They sell, it goes down more and like a snowball rolling downhill, the farther it goes, the bigger it gets.
"Right now fear is running amok in the market and I think that when you look at stocks by any logical means, they are incredibly cheaply valued at the moment," Levin added. "But people are very fearful right now so they're selling regardless of what they're valued at right now."
Only when that fear dissipates and the panic is resolved will people realize what bargains exist on the market. Experts say that will trigger the rebound they believe is inevitable.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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