The Dow pushes through new record, let's have some fun with numbers

Had Boeing split its stock last year, the Dow would still be in 21K land. Photo / AP

By Allan Sloan

OK. Now that the Dow has pushed through another thousand-point barrier, let's have some fun with numbers. Hey, it's the weekend, let's relax and see if we can smile a little.

So here we go.

You'd like to think that major financial market indicators like the Dow Jones industrial average and the Standard & Poor's 500-stock index, which are such serious subjects to most people, are firmly grounded in sound statistical reality. But as we'll see, these indicators have their fluky moments - and this is one of them.

The case in point: Boeing, whose influence on the Dow this year has been almost 15 times as big as its influence on the S&P.

How can this be? Let me show you.

Boeing accounted for an astonishing 25 per cent of the Dow's 11.4 per cent rise for the year through Wednesday, the day the Dow broke 22K. How much of the S&P's 10.3 per cent rise for the year did Boeing account for? Would you believe less than 2 per cent? Well, you should. It's about 1.7 per cent by my estimate, which is based on numbers that I got from Howard Silverblatt, senior industry analyst of S&P Dow Jones Indices.

Then there's Apple, which I used to mock for being the Dog of the Dow after it was added in March 2015, replacing AT&T. That swap quickly turned into an iFiasco that held the Dow hundreds of points below where it would have been absent the Apple-for-AT&T swap.

But the dog has finally stopped barking. Apple's stock has been on fire lately, and its $7.09 gain on Wednesday accounted for about 49 points of the 52-point rise that gave the Dow its first-ever close above 22K.

Apple accounted for 12.6 per cent of the Dow's rise for the year through Wednesday (US time) - and 7.7 per cent of the S&P's rise.

How can Apple have accounted for only half as much of the Dow's rise as Boeing did, but had 4.5 times as much impact on the S&P?

It's because the Dow is based on stock prices, and the S&P is based on stock market value.

Boeing's stock price rose by $82.27 for the year through Wednesday. That's a quarter of the total dollar rise of the Dow's 30 components. But Boeing's stock market value rose by only - only! - $44.2 billion, which was about 1-60th of the increase in the S&P's stock market value.

Apple's price rose by $41.32 a share, only about half as much as Boeing's did - which is why its influence on the Dow was only about half of Boeing's. But Apple's stock market value rose about 4.5 times as much as Boeing's: $201.7 billion, which was about 1/13th of the total increase for the S&P stocks.

Why the different kinds of calculation? Because when the Dow was created in 1896, the only way to calculate a market indicator was to add up the components' stock prices and divide by the number of stocks contained in the indicator. Technology was, shall we say, primitive by today's standards.

But by the time the S&P 500 was created in 1957, technology had improved to the point where you could calculate stock market value in an eyeblink. That meant that you were no longer tied to stock prices to do real-time market math.

Market value is a far better market indicator than stock price, because stock price can be so random. If, for example, Boeing had split its stock two-for-one at the end of last year, its share price would have risen only half as much as it did, and its impact on this year's Dow would be only half of what it turned out to be. But its impact on the S&P would have been unchanged.

To sum it up: Had Boeing split its stock last year, the Dow would still be in 21K land. And I would have had to find something else to write about. Thanks, Boeing. I appreciate having something numerical, non-political and non-controversial to write about.

Now, I'm off to try to enjoy the weekend. Hope you are, too.