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Don’t Forget About the DOW

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Interestingly, the Dow was a big outperformer on the day (up .76%), and usually when that happens there is one stock that is up several percentage points that skews the average.  Interestingly, that was not the case on Monday, as the strength in the Dow was evenly spread across many of the index components (TRV, The Travelers, was the best performing stock in the index up just 1.79%).

The Dow is now up 5.76% for the year, about half of the S&P 500.  The reason for this underperformance has to do with the sectors that have rallied the most year to date (Tech and Financials) which are more heavily weighted in the S&P than in the Dow (plus the Dow doesn’t have AAPL).

But, the outperformance today should be noted.  If we are heading into a period of concern/weakness in the markets, the sturdy, somewhat stodgy, industrial companies in the Dow, with strong cash flows, good yields, and decidedly less economically sensitive businesses, will outperform.

If investors are concerned about the market trading like it’s 2011, then perhaps it’s helpful to look at what worked in 2011.  Keep in mind, in 2011 the Dow finished up 5.5%, while the S&P was flat, and the NASDAQ fell 1.8%.

 

The AAPL Effect/in /by

One of the things traders are constantly monitoring is internals of an index or market, for clues about the strength or weakness of that market beyond what the simple headline numbers say.

That is why investors and trader monitor which sectors are rising and falling, because it can give insight into the “health” of a market rally.

For instance, if you have a market rallying but defensive sectors like utilities or consumer staples are leading the rally, that’s not a good thing.  The reason is because those defensive sectors outperform when the economy isn’t growing or people aren’t confident about the direction of a market (they are both economically insensitive—people need electricity and basic consumer goods like razors regardless of whether the economy is growing or expanding) . . .

The above is an excerpt from the Sevens Report. To read the entire article and to receive daily commentary on all major markets and market moving economic and geo-political events, sign up today to request a free 2-week trial of the Sevens Report.