360 Degrees of the Dow

A Tribute to Caterpillar, Altria and United Technologies, by David Merkel

Originally published in Columnist Conversation on Sept. 27 at 11:45 a.m. EDT

Over the last six-plus years, (in order) Caterpillar, Altria, United Technologies, 3M and Boeing rescued the Dow Jones industrials from obsolescence. Take the performance of the top three away, and the Dow would be around 10,450, which would be closer to the performance of more broadly representative indices like the Wilshire 5000, off 9% from its peak, or the S&P 500, off 14% from its peak.

Part of what this points out is, with the exception of Altria, the Dow has been led over the last six-plus years by a gaggle of industrials, and dragged down primarily by big-cap tech (IBM and Microsoft), General Motors, the old AT&T and Kodak. It's interesting to see what goes in and out of favor; personally, I would expect that over the next six-plus years, a new group would lead in relative terms. Maybe it will be tech, maybe it will be energy and materials. Who can tell?

The DJIA was a state-of-the-art index in the era before computers, but when we can crunch the numbers easily, an index where you add up the prices and multiply by a factor is quaint at best. All of the fuss over it possibly closing at a new all-time high today is more notable for the media hoopla going on around it than for its true significance to the market as a whole. But if you look under the hood, the path of the Dow over the past six years is a tale of what industries performed well, and which didn't. That's a more interesting story than the DJIA at a new closing high.

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When Business News Turns Into an Infomercial, by Rev Shark

Originally published on RealMoney on Sept. 27 at 12:25 p.m. EDT

I'm about ready to change the channel from CNBC to Jerry Springer, as I search for greater intellectual insight, useful information and less sensationalism. Seriously though, the focus on the new high in the Dow Jones Industrial Average on CNBC is beyond silly. It simply fans the flames of emotions. It is like a daylong infomercial, lacking the class, and far more dangerous than hair in a can or a ginzu knife.

This is exactly the sort of emotionalism that ultimately led to so much pain for retail investors when the bubble broke in 2000. They were so revved up and convinced by the media that we were going to go straight up because we were at highs that they simply wanted to be in.

Frankly, I'm embarrassed and disgusted as a financial professional to watch this display. Even if the market does continue higher from this point, it is irresponsible to build it up to such a degree. What exactly happens once the DJIA does hit a high? Is there no longer any reason to worry about the market? Should we be buying more and more aggressively as this monumental news builds?

The market continues to act extremely well, but unless you are hypnotized by CNBC, it is a tough chase at this point to put more capital to work. As I said earlier, stick to the charts and don't let the emotions out there unduly influence you. As good as things look today, they can look just as bad next week. Stay disciplined.

Earlier, Rev Shark wrote:

The real story isn't the DJIA at its highs but the bifurcated action of the market and the rotation out of oil and commodities and into technology and retail. Too bad they don't talk about something like that, which would help us make money, rather than sensationalize an out-of-touch index like the DJIA.