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The Stock Market Game Week in Review: Oct. 13

A review of the week that was.

Editor's Note: This article was produced by the staff of The Stock Market Game, a stock market simulation for students. For more information, click here.

As we enter Week 6 of The Stock Market Game's Week in Review, the hot topic on the street is the Dow and S&P 500. The Dow Jones Industrial Average hit another all-time high yesterday as it roared past 11,900. It closed at 11,947.70, up 95.57 points or 0.81%. McDonalds', Microsoft, and Hewlett-Packard were the main drivers of the strong gain. The Standard & Poor's 500 also performed strongly yesterday as it jumped 12.88 points, or 0.95%. But it reached its highest close since January 29, 2001, on Thursday when it closed at 1,363.

But what do these indices really represent? Both are used as a gauge for the overall health of the market. The Dow Jones Industrial Average (DJIA), (a.k.a "the Dow") is the best-known and most widely followed market indicator in the world. It tracks the performance of 30 blue chip U.S. stocks. Though it is called an average, it is actually a price-weighted index, which means the gains and losses of the highest priced stocks are counted more heavily than gains and losses of lower priced stocks.

Quoted in points, not dollars, the DJIA is computed by totaling the weighted prices of the 30 stocks and dividing by a number that is regularly adjusted for stock splits, spin-offs, and other changes in the stocks being tracked. The companies that make up the DJIA are changed from time to time. For example, in 1999 Microsoft, Intel, SBC Communications, and Home Depot were added and four other companies were dropped. The changes were widely interpreted as a reflection of the emerging or declining impact of a specific company or type of company on the economy as a whole.

Many analysts are critical of the Dow since it contains just 30 companies selected by the editors of The Wall Street Journal. Many feel the Standard & Poor's 500 (S&P 500) index, which tracks 500 major American companies, offers a more accurate reflection of the overall market. The S&P is based on companies' stock market values while the Dow is based their stock prices.

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So is the current rally the real deal? It is according to Andrew Feltus, manager of the Global Pioneer Investments High-Yield Fund, but he cautioned the Federal Reserve's concern about inflation is a question mark for this feel-good rally. The Fed probably won't cut rates any time soon, he told CNBC yesterday, nor does he think the Fed will raise its rates any time soon.

Investment ideas for students: This week Jim Cramer is bullish on Google (GOOG), which is a recognizable company for student, but also could become, "the de facto only tech or media stock you need," between now and the end of the year. You can read Jim's thoughts on the stock



This article was written by a staff member of The Stock Market Game.