Arab Today, arab today dow prefers deficiencies over a slice of apple
Last Updated : GMT 21:34:07
Arab Today, arab today
Arab Today, arab today

Dow prefers deficiencies over a slice of Apple

Arab Today, arab today

Arab Today, arab today Dow prefers deficiencies over a slice of Apple

New York - Arabstoday

Apple is the world\'s most valuable company. The Dow Jones industrial average is probably the world\'s best-known stock index. So don\'t they deserve each other? Consider this: If Apple had been added to the Dow in June 2009, the last time there were serious rumours that it would happen, the average would be about 2,500 points higher than it is today and well above its all-time high. Paul Hickey of Bespoke Investment Group, which crunches numbers about the markets, says the Dow would be at 15,360, about 1,200 points above its record of 14,164, set in October 2007. The Dow closed on Wednesday at 12,835. Not only would investors be perkier, but everyday Americans watching the Dow set one record after another would probably feel wealthier. That might inspire them to spend more money and help the economy grow faster. In 2009, when a bankrupt General Motors and a hobbled Citigroup were booted from the Dow and Apple was talked about as one replacement, Apple stock traded at about $144. On Wednesday, it closed at $569. Because of how the Dow is calculated, Apple would dwarf the other stocks in the average and distort the Dow from its purpose — which is to reflect the broad economy, not represent the hottest stocks. A big one-day gain by Apple, like a $50 jump after it reported blockbuster earnings last month, would send the Dow higher by hundreds of points. Similarly, a big drop would suggest the market was in more trouble than it really was. The Dow comprises 30 stocks. It is weighted so that a $1 move by any stock, no matter how cheap or expensive, moves the average the same — about seven and a half points as the Dow is calculated today. Because it\'s much easier for a $100 stock to move $1 than it is for a $20 stock, higher-priced stocks carry more importance. IBM, at about $200, is the most expensive stock and carries nearly 12 per cent of the Dow\'s weight. Apple would carry a quarter or more, depending on which stock it replaced. \"It wouldn\'t be the Dow Jones industrial average,\" says Nicholas Colas, chief market strategist at ConvergEx Group. \"It would be the Apple Plus Some Other Stuff Index.\" Apple is already the biggest component of the other two major US stock indexes: It makes up nearly 12 per cent of the Nasdaq composite and more than 4 per cent of the Standard & Poor\'s 500. \"We don\'t run the Dow as we would an investment portfolio,\" says John Prestbo, the executive editor of Dow Jones Indexes, which maintains the Dow and other indexes. Prestbo, along with the managing editor of The Wall Street Journal and the research head of the CME Group, which owns a majority stake of Dow Jones Indexes, decide which companies make up the Dow. They meet occasionally to discuss whether they need to change the index. The CME Group provides benchmark indexes on investments like agricultural products, energy and metals. Three years ago, when GM and Citigroup got the axe, the group snubbed Apple and chose Cisco Systems. Cisco has moved slightly lower. In the hypothetical example provided by Bespoke, Apple would have replaced Cisco in 2009. There\'s some history behind the idea of having the most valuable company be part of the Dow. Exxon Mobil, which held the title until Apple wrested it in January, is a Dow member. Ten years ago, two Dow components, Microsoft and GE, jockeyed for the honour. But Prestbo brushes off the what-if questions about Apple. Would the Dow be higher? Sure, he says. \"But it also wouldn\'t be tracking the market.

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