Yes, the Dow Hit 17,000 Today. And No, You Shouldn't Care

Disney's magic touch helps the Dow; Rite Aid and PetSmart rally for two entirely different reasons.

Jul 3, 2014 at 8:00PM
Longview

Do you remember? Do you remember where you were when the Dow Jones Industrial Average (DJINDICES:^DJI) hit 13,259 for the first time in recorded history? If you don't, it's perfectly OK. Don't give yourself too much grief. It's hardly criminal. It's just that, well -- 13,259 is a prime number. That's all. Thought you might have remembered how quirky that was.

Sure, it's nice for one of the world's most commonly quoted measures of corporate success to be above a new "psychological barrier," a euphemism that, in this context, means: "You can remember the number 17,000, can't you? Pretty big, ain't it? Jeez -- what an economy! Where will it go next?"

Before Thursday's holiday-shortened session was over, it would advance 92 points, or 0.5%, to end at 17,068, whizzing past the prime number 17,053 in the process. Remember where you heard it first.

Shares of Walt Disney (NYSE:DIS) helped the Dow reach its record-setting close on Thursday, in a show of brute force that saw the benchmark index clear a dozen previously unsurpassed prime numbers -- prime numbers correlating to the Dow's 30-component, price-weighted average -- by the day's end. Despite Disney's presence in the index, the Dow's new record isn't nearly as magical as we like to think it is. The Dow has the ability to add or drop stocks from its elite circle, which can misrepresent the state of the economy when poorly performing stocks are replaced with shares of more robust companies, for instance. This has happened literally dozens of times since its debut in 1896 as a 12-stock average, the first occurring a mere three months after its inception, and the most recent change occurring less than a year ago.

Indexes are thought to give us a broader sense of how companies are performing, but even in the most generous hypothetical cases, the Dow fails to tell us much of anything. It's a price-weighted index of just 30 stocks, meaning the everyday zigs and zags that are supposed to mimic the fluctuations of the American economy are determined by 30 stocks, any of which can be replaced on a whim, and whose contribution to the index is measured by their share price, not their size. Goldman Sachs, for instance, is the fifth-smallest blue chip component; yet -- because of its "high" share price -- it has more power to move the index than 27 of its peers.

While there are many others, Rite Aid's (NYSE:RAD) stock is particularly ill-suited for a comparison against the Dow's performance. The drug store, with a market cap just above $7 billion, is less than a quarter of the size of the Dow's smallest component. But Rite Aid investors are doing just fine without the Dow to serve as a constant comparison. Shares jumped 5.6% today as last month's same-store sales increased a booming 7.5% month over month, driven by revenue from its pharmacy. With increasing competition from other drugstores to recruit recurring pharmacy customers via techniques like loyalty programs, the longer-term concern is whether Rite Aid's slim margins can hold up or not.

Petsmart

Jana Partners might just groom PetSmart to its liking. Image Source: PetSmart

Finally, shares of PetSmart (NASDAQ:PETM) soared 12.5% on Thursday as the activist investing firm Jana Partners announced a nearly 10% stake in the pet accessories retailer, prompting Wall Street to rub its hands in anticipation of shareholder value-producing changes. Activist investors, by definition, take a meaningful stake in a public company, and then proceed to shake things up, often through spinoffs, executive shakeups, the shuffling of board members, and capital restructuring. PetSmart, which saw profit growth decelerate from 34% annually to just 7% last fiscal year, may need the help.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

John Divine has no position in any stocks mentioned. You can follow him on Twitter @divinebizkid and on Motley Fool CAPS @TMFDivine.

The Motley Fool recommends Goldman Sachs, PetSmart, and Walt Disney. The Motley Fool owns shares of Walt Disney. 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 Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers