What is the function of market statistics?

Herd news.

The news folks like to pretend that the indexes like the Dow or S&P are indicators of the health of “The Economy” and they get all breathless about the merest movements (“ZOMG Dow down 50 points!!!” on a Dow of 18000 two tenths of a percent don’t mean squat.)

In reality trends in these indices, especially short-term trends, are more indicators of the perceived relative value of equities vs bonds and other instruments as the traders’ algorithms steer them toward the biggest pile of nickels. Traders, especially small volume traders, can make money by scoping out where things are heading in the moment and trying to get ahead of that. They are measurements of the aggregate current mass-hysteria among traders.

Without other information like inflation and debt and trade deficits the indices are econo-babble.

The stock market is considered a leading indicator of the economy, since investment/divestment in the market is considered to be in anticipation of the direction of the economy 6 -12 months out.

The Dow Jones Indices and the S&P 500 are tailored to provide a single number to indicate the market as a whole. The Dow Jones Industrial Average is the 30 blue chip industrial companies, that both drive the economy and also benefit from the economy.