Why the Dow has Underperformed
In the last few months the Dow has underperformed other major stock market indexes.
The question is why? Why does the Dow fall when other indexes rise?
The simple answer for this year — The Dow owns less of the big tech names that have soared this year.
The reason is the Dow is built differently than other indexes.
Because these indexes are made up of individual stocks, it’s important to understand which individual stocks and how those stocks are determined.
The Nasdaq is market cap weighted based on Nasdaq listed stocks (a lot of technology).
The S&P 500 is the most ‘blended’ index — and is the 500 largest stocks, market cap weighted.
The Dow is 30 of the most “important” US companies, selected by a committee and are price weighted instead of market cap weighted — meaning Apple won’t be it’s largest company.
That is where the difference in performance comes from.
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The Dow does not own — Nvidia (up over 100% this year), Google, or as much of Apple or Amazon (like the S&P and Nasdaq do).
The Dow does own — UnitedHealth, McDonald’s, Boeing (you’ve seen the headlines), 3M, Disney, and Nike (which are all less owned by the S&P and Nasdaq).
Indexes always perform as their constituent companies do — and it is important to understand that when you are referencing them.
Key terms:
Market Cap Weighted: The method of weighting stocks in an index based on the market value of a company. (i.e., Apple has the largest value, therefore it holds the largest weight.)
Price Weighted: The method of weighting stocks in an index based on the price per share at which a company trades. (i.e., Apple would not have the largest value because there are plenty of stocks with prices above Apple’s.)
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3 个月Interesting. Maybe we avoid an auto-pilot into a falling market? Market crashes are less organic than this, I believe. Market crashes are developed, then exercised by market wolves in sheep's clothing Look at the design of our economy.We hide unemployment. This country's unemployment or participation rate, has always been around fifty percent. This is scandalous. This country's inflation rate has always been ten percent per annum since coming off the gold standard (a home, a car in 1971 cost $14,000 & $1,200 respectively. That home, that car costs $1.5 M & $60k today). And we hide this. By 1958 75% of our medias were owned by a few men.Today that number is closer to 100% Our federal reserve is not a federal institution, but a group of private banks, run by men appointed and unelected, with both private wealth and private interests. And they are printing our money Dylan Ratigan tried to expose the Ponzi scheme, but was fired for speaking out, ranting for 20 minutes, remember? A friend of mine, retired Navy Commander, Intelligence, Brian, told me just the other day, that everyone is corrupt. Well, they're all spying on us, and they know they're wrong. Everyone is playing along, including lawmakers MARK applied physics
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3 个月The Dow’s struggles reflect its structure; fewer tech giants in the mix limits growth potential. Unique design leads to unique performance, for sure.