Dow's rise might forecast future economic growth

IU Business professor Robert Klemkosky offered insight into the Dow Jones industrial average's brief foray above the 10,000 mark Tuesday for the first time in 18 months. Although reaching the 10,000 mark is promising for stock owners, the number itself doesn't hold a lot of significance, said Klemkosky, the Fred T. Greene professor of finance at the Kelley School of Business.\n"Ten thousand really doesn't mean much," he said. "It has been there before, but it gets a lot of attention because people get excited about that number."\nThe Dow also closed up 0.9 percent at 10,008 Thursday.\nThe Dow experienced a drop between 38 and 39 percent during the worst period of the recent economic recession, although the larger stock indexes fell much lower. \n"All stocks had lows last October when the economy was bad," Klemkosky said. \nStock prices rise and fall several times throughout the day. To come up with the final index number, the closing prices of each stock are combined in a formula at the end of the day. \n"The index number is significant because a rising stock market is always good news for the economy," said Scott Smart, associate finance professor at the Kelley School of Business. "But the actual number 10,000 doesn't really mean anything -- it has no magical significance."\nThe Dow Jones Industrial Average is not an index most professional money managers use, but it is well-known because it is made up of blue chip stocks -- stocks leading the industry world. Because of this, the index rise received a lot of attention.\n"Dow Jones isn't the most accurate representation of the market because it only has 30 stocks," said William Sartoris, professor of finance at the Kelley School of Business. "The S&P 500 stock has 500 different industries, which makes it much more accurate than the Dow."\nThe Commerce Department reported retail sales were up 0.9 percent for November, the largest advance since August. \n"The stock market is a precursor of what the economy will do," Sartoris said. "People like to look forward, especially if the future looks promising."\nSartoris said the public looks to the Dow as a barometer of the country's economic situation.\n"(The Dow) is the most popular index, mainly because they own the Wall Street Journal, so it has been popularized in newspapers," Sartoris said. \nThe Associated Press contributed to this article.\n-- Contact staff writer Lee Cleary at lgcleary@indiana.edu.