The Dow is back at it. Boeing a major reason for the high numbers
OK. Now that the Dow has pushed through another thousand-point barrier, let’s have some fun with numbers. Hey, it’s a summer weekend, let’s relax and see if we can smile a little.
So here we go.
You’d like to think that major financial market indicators like the Dow Jones industrial average and the Standard &Poor’s 500-stock index, which are such serious subjects to most people, are firmly grounded in sound statistical reality. But as we’ll see, these indicators have their fluky moments — and this is one of them.
The case in point: Boeing, whose influence on the Dow this year has been almost 15 times as big as its influence on the S&P.
How can this be? Let me show you.
Boeing accounted for an astonishing 25 percent of the Dow’s 11.4 percent rise for the year through Wednesday, the day the Dow broke 22K. How much of the S&P’s 10.3 percent rise for the year did Boeing account for? Would you believe less than 2 percent? Well, you should. It’s about 1.7 percent by my estimate, which is based on numbers that I got from Howard Silverblatt, senior industry analyst of S&P Dow Jones Indices.
-snip-
Why the different kinds of calculation? Because when the Dow was created in 1896, the only way to calculate a market indicator was to add up the components’ stock prices and divide by the number of stocks contained in the indicator. Technology was, shall we say, primitive by today’s standards.
But by the time the S&P 500 was created in 1957, technology had improved to the point where you could calculate stock market value in an eyeblink. That meant that you were no longer tied to stock prices to do real-time market math.
Market value is a far better market indicator than stock price, because stock price can be so random. If, for example, Boeing had split its stock two-for-one at the end of last year, its share price would have risen only half as much as it did, and its impact on this year’s Dow would be only half of what it turned out to be. But its impact on the S&P would have been unchanged.
http://www.heraldnet.com/business/the-dow-is-back-at-it-lets-have-some-fun-with-numbers/