Is the Dow's Jump Pulling Up the Market?

When you hear that the stock market is up, which "market" do you mean? Today's a great example of how confusing that statement can be, as you can point to three different markets with three totally different results:

  • The Dow Jones Industrials (INDEX: ^DJI  ) are up by triple-digits today, again challenging the 13,000 level.
  • The S&P 500 (INDEX: ^GSPC  ) is also up, but only by about a quarter-percent.
  • The Nasdaq Composite (INDEX: ^IXIC  ) is down 0.4%, as Apple is falling almost 3% as the stock corrects from its huge move up so far in 2012.

So even on a day when the Dow is moving higher, your portfolio may well be up sharply, roughly flat, or down a lot today. It all depends on which "markets" you focus on.

In addition, owning Dow stocks doesn't mean that your portfolio will move in lockstep with the Dow. One thing about the Dow is that a small number of stocks can have a big impact. For instance, Caterpillar (NYSE: CAT  ) got upgraded by Bank of America (NYSE: BAC  ) today, with a price target more than 25% above its current price. That stock by itself is responsible for 10 points of the Dow's move. By contrast, lower-priced stocks like Bank of America have almost no impact on the Dow even when they put in the same percentage change -- as B of A is doing today, on the heels of some better-than-expected performance from Citigroup.

Know your market
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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter here. The Motley Fool owns shares of Apple, Citigroup, and Bank of America. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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