Is there any reason to still care about the Dow?

Marketplunge

Here's the chart of yesterday's price action in the Dow, the S&P 500, and the Nasdaq. Note anything crazy? Like a whopping great big down-250-points-in-one-tick plunge in the Dow at about 3pm?

As you can see from the broader stock indices, there wasn't some market-wide moment of panic. So was there something which hit the 30 Dow stocks in particular? No. This from Dealbreaker:

"The market's extraordinary trading volume caused a delay in the Dow Jones data systems," said Dow Jones spokeswoman Sybille Reitz. "We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average."

In other words, a computer glitch.

So to the obvious question: Can someone please just take the Dow behind the shed and shoot it, already? It's an average, not an index, which makes it profoundly useless for measuring what stocks in general are doing. It comprises the grand total of 30 stocks, which makes it far from representative of the broader market in any case. And, as we saw yesterday, it can't even calculate itself reliably. Is there any purpose for this anachronism whatsoever?

UPDATE: The WSJ (published by Dow Jones, whose computers went FUBAR yesterday) has a very good, and free, overview of what went wrong.

Posted by Felix at 10:57 EST

Comments

Years ago, of course, the benefit the Dow had was that it was easy to calculate. These days, if I had to make a case for it, my first attempt would be that, with fewer components, on a particularly heavy trading day, it might be less prone to technical glitches.

Rather, that would have been my first attempt 36 hours ago. Tonight, I guess I'm stumped.

(Actually, containing only very liquid issues could help define a value when liquidity drops to nothing. I'm told the closing value of the S&P 500 from October 19, 1987, is essentially a fabricated number; there simply was no trading in most of those stocks by the end of the day, and the CME wanted its new future to have a settlement price, so prices were imputed. The Dow 30 may have traded enough to get a more well-defined value.)

Posted by: dWj at 21:02 EST, February 28, 2007