“The DOW and the Jobseeker”

www.bloomberg.com/video/64940582/

On Wednesday the Dow Jones Industrial Average gained over 200 points. If you are an unemployed individual looking for a job in today’s job market economic indicators such as the DOW Jones Industrial Average matter tremendously to you. It is part of the greater stock market, or the securities market in aggregate where people, institutions, and governments come to buy and sell their stakes in companies, based on their beliefs of the value of those companies and the greater economy’s prospects for growth. In essence, it is an aggregate gauge of perception of the greater economy today and tomorrow. This brings tremendous value to the jobseeker. To clearly articulate this value we need to start with a brief explanation of the DOW Jones Industrial Average.

The Index was created by Wall Street Journal Editor Charles Dow and statistician Edward Jones in 1883. The DOW Jones Industrial Average is composed of 30 large publicly traded U.S. companies that have a significant effect on and are significantly affected by the American economy. These companies are chosen as members of the index for the reason stated- the effect they have on the greater US economy. The average number shown daily is determined by a statistical technique called price weighting. In a nut shell this means that the value of the index is deduced by adding the prices of each of the stocks within the index and dividing the sum by the total number of stocks. The number of a company’s stocks held within the index is determined by the stock price. The greater the price, the greater the stock’s weight within the index. This means that if a company has a stock price of $100.00 per share it will make up 10 times more than a company trading with a stock price of $10 per share. This allows for giving each company a relative weight within the index proportional to its value in the eyes of its stockholders. So if the company is valued greater because it plays a greater role in the economy and is presumed to possess greater growth prospects its share price should reflect these assumptions. Many academics, analysts, economist, and consumers of indexes view this method of calculation and the DOW as poor indicators and instead rely more heavily on the Standard & Poor’s 500.

That having been said, let’s get back to the value of this information for the jobseeker. This information is important because historical analysis of the greater economy and the DOW has shown that the DOW can lead the economy as an indicator by as much as six months. It also encapsulates the feeling of millions of economic participants’ thoughts about the economy on a daily some say hourly basis. In the short run there tends to be an overshot of sentiment either way, but over the long run, it has proven to provide significant evidence that supports it as a somewhat reliable economic barometer.

So the next time, as a jobseeker, you see “Market Rallies” 200 points, just remember that some of the smartest people in our county and the world, motivated by greed, aversion to lost, or a myriad of other reasons see something good on the economic horizon and you too in your job search should be able to capitalize on that positive outlook.

www.bloomberg.com/video/64940582/