Business Monday

Sharp rise in Dow is noteworthy, but watch the stocks behind it

Traders work on the floor of the New York Stock Exchange on Wednesday, when The Dow Jones industrial average closed above 26,000 for the first time.
Traders work on the floor of the New York Stock Exchange on Wednesday, when The Dow Jones industrial average closed above 26,000 for the first time. Getty Images

While the Dow Jones Industrial Average is a massively imperfect gauge of the broader stock market and the economy, it remains the most recognized barometer of capitalism. And it is booming.

The index of 30 stocks just made its fastest 1,000-point jump in its history — running from 25,000 to 26,000 in just eight days. That came after it took only 23 days for it to run up from 24,000. Investors have been piling into Dow stocks since the week after Thanksgiving.

Well, not all Dow stocks. The way the Dow Jones Industrial Average is computed gives higher priced stocks more influence, no matter the size of the actual company. Even though Boeing and Verizon are worth about the same ($210 billion), Boeing’s per share price is seven times higher than Verizon’s. That gives Boeing a much bigger role in computing the Dow index.

Two of the four largest contributors to the Dow’s recent run-up report their quarterly results in the week ahead: 3M and Caterpillar. The two companies date their origins back to the early 20th century, but today’s investors have been eager owners. When they each report quarterly results on Thursday, it will be a window into the global economy.

For Caterpillar that means the construction, generators and engines. At 3M, it means industrial products, safety gear and healthcare equipment. And for both, their business growth has been led by demand from China in previous quarters.

The Dow’s sharp rise is noteworthy, but the stocks behind it, and their businesses, are what matters.

Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM; @HudsonsView.

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