Market Proxy

Think: market approximator.

A “market proxy” is a theoretical representation of the market as a whole that’s supposed to tell us how it’s doing right now, and how it might be doing in the future. Market indexes like the Dow Jones Industrial Average are examples of market proxies: they only include a limited number of securities, but analysts use the indexes’ behavior to draw conclusions about the market as a whole.

Sometimes they’re right, and sometimes they’re not. Sometimes the index is a good market proxy—the S&P 500 is fairly reliable, for instance—and sometimes it’s not.

As investment trends change, some market proxies might go the way of the rotary phone, while other new ones are created to take their place.