The Best and Worst of the Dow Today

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is being weighed down by IBM (NYSE: IBM  ) , its largest component, after a competitor reported bad results. In economic news, consumer sentiment came in better than analysts' expectations. As of 1:15 p.m. EDT, the Dow was down 48 points to 14,976. The S&P 500 (SNPINDEX: ^GSPC  ) was down two points to 1,611.

There has been just one U.S. economic release today. The University of Michigan consumer sentiment index for June came in at 84.1, above analysts' expectations of 83, but below May's index of 84.5.

Source: University of Michigan

Consumer sentiment about current conditions dropped from 98 to 93.8 while sentiment about future conditions rose from 75.8 to 77.8. Consumer sentiment continues its slow trend upward, and is likely to continue despite the Fed's talk of tapering, which has had little effect on most consumers' daily lives.

IBM is a drag on the Dow today: The stock has slid 2.80% to $190.58 as competitor Accenture reported its third-quarter sales and income, which were both below analysts' expectations. IBM makes up just over 10% of the Dow, so its movement has outsize effects.

I've written before why I'm not a fan of how the Dow is structured. The Dow is weighted by the stock prices of its component companies and nothing else. As such, IBM, with its stock price of $190, has nearly double the weight of the next component, Chevron, a stock with a price of $119. It was meant to be easily calculable in the time of pencil and paper. To calculate, you simply add up the 30 stock prices of the components and divide the total by the Dow divisor. When the index was formed, the divisor was 30, but after 116 years of stock splits, dividend payments, and component changes, it currently stands at 0.130216081.

Today's Dow leader
Today's Dow leader is Home Depot (NYSE: HD  ) up 1.22% to $77.23. During the past few months there has been continuous good news about the housing market, and yesterday was no different: The National Association of Realtors reported that its pending home sales index rose 6.7% in May to its highest level in over six years. The association said that people have been rushing to close sales as mortgage rates continue to rise – yesterday they hit a two-year high of 4.46%.

US 30 Year Mortgage Rate Chart

U.S. 30-Year-Mortgage Rate data by YCharts

Home sales will likely slow in the short term, but with the existence of so much pent-up demand for homes as the economy strengthens, the housing market will continue to improve and Home Depot is in prime position to benefit.


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