The Dow jumped nearly 7 percent yesterday, firing up investors (including me, as I just put more money in index funds. I'm taking a break from ETFs--here's why.) The rally, following news about the government's toxic asset plan, was the biggest in five months. So...does this represent a turning point?
The L.A. Times' Money & Co. blog makes the bull case for why this isn't just another bear-market rally:
Every bear has to die, and this one already has done more damage than any other of the post-World War II era. So if we haven't entered a new Great Depression, and enough investors have faith that the economy is bottoming, it would be natural for stock prices to begin to recover -- or at least, stop falling.
Portfolio.com's Market Movers blogger Felix Salmon offers some insight on how to read the Dow. He asks the question: Should you look at the level of the index, or the percentage that it moves over the course of a day?
A little history on the DJIA: The "industrial" part of the index's name is outdated. Today, the Dow is made up of 30 large, widely held U.S. companies, and its goal is to provide a representative snapshot of the overall economy. It's a price-weighted index, which means that each stock is represented proportionally to its price per share (so a $100 stock would get twice the weighting of a $50 stock.)
For more on why the index is so important, see The Dow Below 10,000: A Psychological Downer.
And here's a primer on what you need to know--and why you should care--about Geithner's plan for toxic assets.
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