New DJIA tells us the market is a rich man’s game.
By Dian Vujovich
It’s been a week since the DJIA has traded with its new components.
Beginning on Monday, September 24th, three of the least expensive stocks that used to be a part of the DJIA had been canned and replaced by those with more expensive per share prices.
The Dow Jones Industrial Average is supposed to provide investors– and the worldwide business world– with a snapshot of the broad measure of the U.S. stock market. Period.
If that is honestly the purpose of the DJIA, eliminating companies because their per share prices are cheap makes absolutely no sense at all. Why? Because there are literally thousands of publicly traded companies with per share prices under $20 trading in the marketplace, according to E*Trade. Three used to be part of the DJIA.
The three cheapies that got canned were Alcoa (AA), Hewlett Packard (HPQ) and Bank of America (BOA). Replacing them: Goldman Sachs (GS), Nike (NKE) and Visa (V).
From my E*Trade screener research, here’s a look at the number of inexpensive stocks on the major exchanges based on Friday, September 27, closing prices:
•New York Stock Exchange. Of the 2432 stocks listed there, 1073 had per share prices under $20; 413 were priced under $10 a share; and 138 under $5.
•S&P500. Of the 500 stocks, 43 were priced under $20; eight under $10; and only one under five bucks a share.
•NASDAQ. 2440 stocks on this exchange and 1567 had per share prices under $20; 986 under $10; and 540 under $5.
Of the roughly 5400 stocks on the three exchanges, almost one-half of them have per share prices under 20 bucks. Now that’s a more accurate snapshot of our markets!
On the other hand, if you’d like things to look a bit better –or worse than they are depending upon the market’s direction—eliminating the cheap stuff is the way to go.
So, given that the DJIA is a price-weighted index, the new Dow shows me that it now reflects that of a rich man’s market and no longer gives us a snapshot of the overall one.
But hey, what’s new. Wall Street has become a seriously rich man/rich woman’s game where reality is skewed. So yes, Virginia, the rich do really see things differently than the rest of us. And now the DJIA does too.
To read more articles, please visit the column archive.