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What Influences The Dow Jones Industrial Average?

The single greatest influence we can find which affects the level of the current DJIA is consumer credit which contributes over 13% to the Dow. Increases in consumer credit increase the DJIA--the Dow this month is influenced heavily by consumer installment credit from the previous 6 months.

The next greatest influence is previous Dow activity. This suggests the market has a memory since the Dow this month is heavily influenced by the Dow of previous months. This may also be an indicator of self-sustaining and self-limiting behavior--if the market falls too quickly investors will move in to take advantage of "good deals" and boost the Dow whereas if the market rises too quickly investors may become jittery and sell off stock to drop the Dow. However the Dow's memory is short as the greatest influences on today's Dow come mostly from the previous two months. The previous Dow accounts for almost 9% of the current Dow.

The next  influence is exports at 7% with imports at 4%. Imports and Exports together would account for 11% which would place it higher than previous Dow activity. This may be an indicator of how strongly our economy is tied into the world market.

The fourth greatest influence is the M3 money supply--as the money supply increases the Dow increases as well (if every thing else stays constant which it won't).

Surprisingly personal savings and the government surplus or deficit had the least effect.

The following graph shows the magnitude of various influences on the DJIA.

Influences on the DJIA

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