Fig­ur­ing out mar­kets de­pends on how you look at the num­bers

The Buffalo News - - BUSINESS NEWS - By Al­lan Sloan WASH­ING­TON POST

Is the bull mar­ket in its 11th year or just in its 11th week? Is the stock mar­ket up to­day or is it down to­day? Nor­mally, these are ques­tions that are easy to an­swer. But these days, the right re­sponse is, “It de­pends.”

How so? Partly be­cause of what I’ve taken to call­ing the bi­fur­cated bull mar­ket. And partly be­cause of the to­tally dif­fer­ent ways that the Dow Jones In­dus­trial Av­er­age and the Stan­dard & Poor’s 500-stock in­dex are cal­cu­lated.

Be­cause of the con­ven­tion that de­ter­mines when bull mar­kets are deemed to have be­gun and ended, the Dow and the S&P 500 have been in a bull mar­ket since March 9, 2009.

How­ever, the bull mar­ket for the Wil­shire 5000 to­tal mar­ket in­dex (which in­cludes all U.S. stocks) and the Nas­daq com­pos­ite in­dex ended Christ­mas Eve, which is the day the new Wil­shire and Nas­daq bull mar­kets are deemed to have started. Hello? How’s that pos­si­ble? Watch. On Dec. 24, the Wil­shire and Nas­daq closed at 20.7 per­cent and 23.6 per­cent, re­spec­tively, be­low their all-time highs, end­ing the bull run that had started on March 9, 2009. A bull mar­ket, you see, is deemed to have ended on the first day that an in­di­ca­tor closes at least 20 per­cent be­low its high.

How­ever, the S&P and Dow ended Dec. 24 down only 19.8 per­cent and 18.8 per­cent, re­spec­tively, from their highs. That meant they were still in a bull mar­ket.

Last month, ac­cord­ing to num­bers I got from Wil­shire As­so­ci­ates, the Wil­shire (on Feb. 22) and the Nas­daq (on Feb. 15) first closed at least 20 per­cent above their Christ­mas Eve lows. That means both in­di­ca­tors are deemed to be in a bull mar­ket that had started on Dec. 24. See? Isn’t it sim­ple? Now, to whether the mar­ket is up or down. It de­pends on whether you’re talk­ing about the Dow or the S&P. Usu­ally, they’re rea­son­ably in sync. But they weren’t on Mon­day and Tues­day, thanks to Boe­ing.

Boe­ing stock, a huge fac­tor in the Dow but a min­i­mal fac­tor in the S&P, fell sharply on Mon­day and Tues­day be­cause of its 737 Max 8, the type of air­craft that was in­volved in a plane crash in Ethiopia this week.

The Dow is an av­er­age in which each one­point move of any of its 30 com­po­nents counts the same – cur­rently, about 6.78 points. The S&P, by con­trast, is an in­dex that’s com­puted by tak­ing the mar­ket val­ues of all its com­po­nents.

Be­cause Boe­ing has by far the high­est stock price in the Dow, it has far more weight in the Dow (about 11.3 per­cent on March 8 and 10 per­cent at Tues­day’s close, ac­cord­ing to Jef­frey DeMaso of Ad­viser In­vest­ments) than its 1 per­cent weight in the S&P.

On Mon­day, Boe­ing’s sharp de­cline cost the Dow 153 points, ac­count­ing for es­sen­tially the en­tire dif­fer­ence be­tween the Dow’s 0.78 per­cent rise for the day and the S&P’s 1.46 per­cent in­crease.

On Tues­day, Boe­ing’s fall cost the Dow 166 points – more than the Dow’s whole 96-point drop. Had Boe­ing stock been un­changed Mon­day and Tues­day, rather than fall­ing by a to­tal of 47 points, the Dow would have risen by very close to the same per­cent­age as the S&P.

This, by the way, is an ex­am­ple of why the S&P has tril­lions of dol­lars of in­vest­ments in­dexed to it and the Dow has great mindshare but lit­tle mar­ket share.

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