Why Bank of America Couldn't Save the Dow Today

After starting down roughly half a percent in early trading, the Dow almost broke even and the S&P 500 eked out a gain. The Nasdaq fared slightly better than its less tech-focused brethren:

Index

Change

Ending Value

Dow Jones Industrial Average (INDEX: ^DJI  ) -13.02 [-0.10%] 12,449.45
Nasdaq (INDEX: ^IXIC  ) +8.26 [+0.31%] 2,710.76
S&P 500 (INDEX: ^GSPC  ) +0.40 [+0.03%] 1,292.48

Not surprisingly given a flattish market, there wasn't any major market-moving news today. You can fill in your own vague explanations involving slightly favorable U.S. economic news or slightly unfavorable European economic news.

But there was a lot of movement in individual stocks.

Bank of America (NYSE: BAC  ) was the biggest Dow mover today, up 3.6%, to bring its year-to-date recovery off a disastrous 2011 to 23.6%!

But it couldn't bring the Dow into positive territory today. In fact, IBM's (NYSE: IBM  ) 0.6% gain had four times the effect on the Dow that Bank of America's 3.6% did. Why is that? Because the Dow is weighted by the share price of its components (as opposed to the S&P 500, for example, which is weighted by market cap). With IBM in the $180s, and Bank of America trading for less than $7, each IBM price movement has 20-30 times the effect of a Bank of America price movement.

Leading the 16 Dow losers today (out of 30) was Disney, with a 2.3% drop (though Coca-Cola's 1.8% and Chevron's 1.4% losses had bigger effects).

In short, it was another great day for Bank of America, a middling day for the market, and a good time to brush up on our Dow basics. But remember to keep all the daily noise in perspective. Invest for the long term. And if you're looking for a long-term stock pick, our chief investment officer has identified his No. 1 stock for the next year. Find out which stock he likes in our brand-new free report: "The Motley Fool's Top Stock for 2012." I invite you to take a copy, free for a limited time. Get access to the report and find out the name of this legendary company.

Anand Chokkavelu owns shares of Disney and Bank of America. The Motley Fool owns shares of IBM, Bank of America, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Walt Disney, Chevron, and Coca-Cola. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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