The Dow Jones Pendulum Swings Again

Monday, June 11, 2012 at 2:49pm by Sandy Jones

If you have been following the stock market lately, you have probably noticed that it can be very hard to keep up. Our economy is ever-changing and the stock market is greatly affected. The Dow Jones is probably one of the most popular industrial averages that people use. The question remains, who actually understands what it means? With a little bit of background information it is easier to understand the changes that have been occurring lately with businesses and the Dow.

 

 

What Has Been Happening?

The Dow was created by Charles Dow and was officially launched in 1896 comprised of 12 companies. The method that was originally used to calculate the prices is a little more complicated these days. Now the Dow will also look at stock splits, and other actions like mergers and acquisitions. The Dow has also expanded its portfolio to include more than 30 companies. Lately, stock markets around the world have been suffering as different countries are struggling financially. Due to the fluctuations and foreign concerns, the fluctuations have been very visible in the stocks.

Recently, reports have shown some light at the end of the tunnel for the European debt crisis and there was talk that officials could soon reach a solution for many of the countries. Ever since May there has been a drop in the stock market because of the growing concerns. The main focus has been on if Spain would need a bailout or not. Additionally, since Greece is still struggling and now possibly withdrawing from the euro currency union, it is hard to have faith in financial markets. Though there are still things to work out, there is hope. Even the Federal Reserve has talked recently about the possibility of buying more bonds in an effort to boost the American economy. These positive affirmations led to the Dow closing at its highest day of 2012 on June 6. Now that the Dow is rising, can these be a sign of more growth to come?

 

Signs of a Turn Around?

Since the dramatic rise, people are wondering if they can expect to see the stock market continue to rise. Economists believe that in order for this new trend to continue, there will still need to be additional work done in the foreign market. It is imperative that Europe learns a lesson or two from China. With news that the Chinese economy could soon see a slowing of growth, the People’s Bank of China lowered its interest rates. This is the first time since 2008 that it has lowered rates. China’s quick thinking and pressure from the U.S. to make sure that it’s not affected by China’s crisis could possibly give Europe the push it needs to help its troubled countries.

 

Can it Continue?

There is no way to know for sure if these current gains can continue. There are real economic problems that are occurring globally that will need to be handled properly in order for this streak to continue. As with most solutions, there is no easy fix. These global problems will have to be handled in small, precise increments to insure that they are handling the problem effectively. If they can be corrected then there might be continual stock gains. Until then, it is safe to say that though things look great now, we can expect more fluctuations in the future.


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