Figuring out markets depends on how you look at the numbers
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.