Can the Dow still be used to Predict an Economic Recovery?

December 20, 2010

The short answer, NO.

Why, because the Dow is comprised of Multinational companies who derive much of their income from international markets.

The most current S&P 500 figures reported 47.9% of their 2008 sales from outside of the United States versus 45.8% in 2007 and 43.6% in 2006. This upward trend shows that while the economy in the US continues to suck, Multinationals continue to grow based on sales outside of the U.S. Along with this increased percentage of international sales goes an even larger increase in international employment growth. So while these companies, and in turn the stock market, are thriving , Main Street is struggling.

As a result, the major driver in employment growth, small businesses, are not able to play their traditional role in helping the U.S. pull itself up and out of the recession. Of those small businesses that are seeing opportunities for growth, they continue to struggle with banks still unwilling to lend.

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