Dow 20,000?

SOME time soon, the Dow Jones Industrial Average seems likely to break through the 20,000 barrier, an event that will be greeted with banner headlines and a sign that capitalism is flourishing again. In fact, the Dow is a flawed measure, which uses the odd approach of weighting its component companies by share price. The biggest stock in the Dow is Goldman Sachs and despite its prominence on the campaign trail (and among Donald Trump’s new team), it is hardly the most important company in America; its weight depends its near-$240 share price. Like other financial shares, it has shot up in the wake of Mr Trump’s election; boosted both by hopes of bank deregulation and of potentially higher interest rates, which tend to boost bank profits. 

The Dow is up 9% since November 7, well ahead of the more broadly-based S&P 500’s 6.6% gain. The S&P uses a weighting by market value – its biggest stock is Apple which, like many other tech stocks, has seen far less of a boost from Mr Trump’s election. Apple only has the 11th biggest weight in the Dow.

Still,…Continue reading

from Business and finance http://www.economist.com/blogs/buttonwood/2016/12/wall-street?fsrc=rss

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