By contrast, correlations stayed extremely high during the financial crisis, as the Dow had a reasonably similar weighting of financial stocks to that of the S&P 500. More generally, correlations across even unrelated global stock markets have been increasing lately, as ETFs and other investment vehicles have made it easier to invest across borders and knocked down capital barriers that used to preserve price disparities.
Trust the Dow, but know its flaws
From day to day, the Dow Jones Industrial Average (Dow Jones Indices:.DJI) and other market measures won’t always move in lockstep. But you shouldn’t be overly focused on single-day movements anyway. Over the long haul, the Dow Jones Industrial Average (Dow Jones Indices:.DJI) has generally reflected the performance of bigger groups of large-cap stocks, and that makes it good enough for most casual investors to use as a barometer of the overall market.
The article Is the Dow Broken? originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Cisco Systems and Intel and owns shares of Intel, IBM, and Microsoft.
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