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Dow Rises, Despite News of Cooling Economy

The Dow Jones Industrial Average rose again today to another record high. It was a small gain -- 16 points -- but when the Dow sets records as it has this week, it is front-page news across the country. But to people who follow Wall Street, the Dow is an imperfect gauge of market activity.

And some say this week's record could be a sign of trouble for the economy.

The economy slowed significantly in the second quarter, and there are plenty of reasons to think it might slow even more in coming months -- among them, a housing market that is slumping.


When the Dow broke through the record it set in January 2000 this week, it seemed like good times were back on Wall Street. But the investor optimism is belied by some troubling facts.

Some analysts say the current paradox of rising stock prices and uncertain growth prospects may have something to do with the Dow itself. The benchmark's surge has not been matched by the other major stock indexes.

The Standard and Poor's 500 index and the NASDAQ composite index are both up since the summer -- but at a slower pace than the Dow. And the NASDAQ index is still at less than half the level it reached in 2000.

The differences among the indexes are due in part to the way they are designed. Each index reflects the value of a particular basket of stocks. The stocks in the NASDAQ and the S&P are weighted by size, which means the price swings of bigger companies affect them much more than smaller ones.

In contrast, the Dow counts every stock equally. Many people on Wall Street say this makes the Dow less valuable as a market barometer.


Many analysts point out that the Dow has been wrong before. For instance, the Dow rallied 20 percent during the first third of 2001 -- at a time when the U.S. economy was falling into a recession.

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