Tuesday, February 12, 2008

Dow continues to de-industrialize

Next week the Dow Industrial Index will be changing its membership for the first time since it opened its doors to the NASDAQ giants Microsoft and Intel in 2004. Leaving the index on Feb 19 are Altria Group (NYSE:MO) and Honeywell International (NYSE:HON). Replacing these stocks are Bank of America (NYSE:BAC) and Chevron (NYSE:CVX). The changes decrease the industrial sector's weighting to 22% from 26%, while consumer staples weighting drops to 11.6% from 16.4%. Financials increase to 13.9% of the index, from 11%. This is still below the 17.9% weighting the financial sector has in the S&P 500, though. The Dow's energy weighting increases substantially to 10.8% from 5.5%. Energy's weighting in the S&P 500 is 12.4%.

The end result of the change is the index is more exposed to the cyclical energy sector and the strained financial sector. Nevertheless, the Dow Industrial will now more closely reflect the broader economy. It's performance will also more closely mirror the S&P 500. Currently, the Dow is outperforming the S&P 500 by 2% over the past quarter and bested the S&P 500 through much of 2007. A chart of the Dow's Stock Trends Relative Strength Indicator shows the relative performance. See Dow Industrial Index Chart.
Post a Comment