How the Dow Made A New High

I majored in Near Eastern Archaeology, so I love ancient things and no financial topic is older than the Dow Jones Industrial Average, founded in 1896. The modern US Federal Reserve dates to 1913, for example. The current NYSE building opened in 1903. And the NASDAQ is an absolute babe in the woods, dating back to 1971.

That longevity gives the Dow pride of place in the minds of financial laypeople, from the current president to the average citizen. Ask them how the US stock market is doing, and you’ll likely hear them quote the Dow rather than the S&P 500 or other measure. That makes the Average the primary transmission mechanism between capital markets and consumer/business sentiment.

All this makes today’s new record high on the Dow worth a few minutes of your time to understand how it got here. Up 7.8% on the year, it still lags the S&P (+9.6%) and the Russell (+12.0%). But this is the “new high” that will lead tonight’s evening news.

Three points to know about the new Dow record:

#1. Half the Average’s YTD gains (1,938 points) come from just 2 stocks:

  • Boeing has added 556 points in 2018
  • Apple has added 402 points
  • That totals to 958 points, or 49.4% of the Dow’s advance
  • Remember that the Dow is price-weighted, so Boeing ($369) has a higher weighting than Apple ($221) even though BA’s market cap is only 20% of AAPL’s.

#2. Six stocks represent all the Dow’s YTD gains.

  • Apple and Boeing total 958 points
  • UnitedHealth has added 336 points
  • Visa added 275 points
  • Microsoft added 218 points
  • Nike adds 181 points
  • The total: 1968 points, just greater than the Dow’s 1,938 point advance in 2018.

#3. There are actually just as many down names in the Dow as winners in 2018, but there are no real blowups so Boeing’s 556 point gain almost offsets all of them.

  • Two names have sucked more than 100 points out of the Dow in 2018: Goldman Sachs (116 points) and 3M (130 points).
  • The rest of the losers: McDonald’s (81 points), Caterpillar (24 points), IBM (28 points), Travellers (24 points), Chevron (49 points), Walmart (33 points), Exxon (7 points), P&G (52 points), Walgreen’s (13 points), DowDuPont (22 points), Verizon (8 points), Intel (8 points), and Coca-Cola (10 points).
  • Total negative contribution from these 16 names: 605 points, just slightly more than BA’s 556 point contribution.

Summing up with two points:

#1. The Dow may be more exposed to trade/tariff concerns than other market measures, but its unique construction insulates it quite well. Remember: BA’s performance is more than enough to make up for notional trade war exposure at CAT, WMT, KO, and P&G.

Pardon the pun, but Boeing has flown through trade turbulence very well this year. There is something to be said for global oligopolies and long lead times for your product. This one company and its unique position in global aviation have saved the Dow thus far in 2018.

#2. I will be profoundly disappointed if President Trump doesn’t tweet about the Dow’s new highs, but there’s both good and bad news there. The downside is that he may mistake a new high for an endorsement of even more aggressive steps on the trade war front.

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