The One Stock That Matters Most

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The One Stock That Matters Most

To our thinking, Boeing is the most important company in US equity markets. We can even provide some hard-nosed math around that statement. It is 2.4x more influential than Apple, 3.9x more critical than Microsoft, and neither Amazon nor Google is even in the running.

That’s because Boeing is 10.9% of the Dow Jones Industrial Average, the most important measure of US equity prices when it comes to how Main Street judges Wall Street’s performance. A few supporting data points:

  • Every day 5x the number of Americans Google “Dow Jones” as compared to “S&P”, according to the last 12 months of Google Trends data.
  • The Dow weightings for Apple (4.5%) and Microsoft (2.8%) don’t come close to Boeing (remember this is a price-weighted “index”); Amazon/Google aren’t even in the Average.
  • So in terms of how the typical American considers the health of the US stock market/economy, it’s the Dow that matters and Boeing that matters most.

A good bit of trivia, that, but how does it translate into useful investment insight? Three points here:

#1: The Dow is holding its own versus the S&P 500 both YTD and over the last year:

  • Dow: +11.3% YTD, +4.0% over the last year on a price basis
  • S&P: +11.1%, +2.5% over the last year by the same measure

Bottom line: the Dow has not suffered from its lack of names like Amazon or Google, and the typical American’s perception of equity markets is that they have bounced back strongly from December.

#2: You can thank one stock – yes, Boeing – for 30% of the Dow’s advance YTD.

  • BA is +30.7% year-to-date, making it the best-performing Dow stock by a wide margin. IBM and United Technologies are neck-and-neck for second place with 21.4% – 20.6% price gains respectively.
  • Given Boeing’s 10.9% weight, it has contributed 776 points to the Dow in 2019.
  • That contribution is more than the next 4 names combined: Goldman Sachs (225 points), IBM (177 points), United Technologies (157 points) and Home Depot (133 points). That is a total of 692 points.
  • These 5 names are responsible for 56% of the Dow’s gains YTD.

Bottom line: the Dow’s 30-stock composition makes it much more like active management than the S&P 500, for example. Every money manager reading this note knows that a handful of names typically make or break a portfolio. For the Dow in 2019, that’s Boeing plus a few other stocks.

#3. 90% of the Dow is up on the year, underscoring the breadth of the bounce back from last year’s tax loss selling-driven December market rout.

  • Only Verizon (-0.8%), Coca-Cola (-4.8%) and Pfizer (-3.3%) are lower in 2019.
  • These names represent just 3.7% of the Dow.
  • The average Dow stock is +9.3% on the year.

Bottom line: similar to the prior point, avoiding blowups is almost as important to a 30-stock portfolio as finding winners. No issues there – yet – for the Dow.

Summing up: it is hard to imagine a company more levered to long-term global economic trends than Boeing. Last year, 56% of its revenues came from non-US sources. Their China business alone is 14% of sales; Europe is another 13%. Strip out US government sales – 31% of total revenues – and those numbers grow meaningfully.

Boeing just hit a new all time high today, even though the Dow obviously did not; its weighting is therefore still growing and with that the ramifications of a failed/fuzzy US/China trade agreement. Remember: the Dow is the primary transmission mechanism between financial asset prices and the public’s perception of stocks and therefore the US economy.

No pressure, Trump administration… No pressure…