Dow Soars Aloft on Boeing’s Wings: A Good Thing?

Venerable price-measured index benefits from good news for aerospace giant and its soaring stock.

The Dow Jones Industrial Average has a new engine, in fact, a jet engine—belonging to Boeing. The aerospace giant is the biggest driver for the Dow, which says a lot about how that storied index is constructed, and also demonstrates its risk.

Boeing has had one of the strongest starts to a year for a Dow component in decades, Bespoke Investment Group pointed out in a research note. The plane maker was up 50% from its December low and rose over 36% for 2019, through Friday’s close. On Monday, it slid 1.8%, amid a 0.8% dip for the 30-company Dow, not surprising for a top gainer when the trend reverses, however temporary that is.

Unlike the S&P 500, which is market cap weighted, the Dow uses share price as its metric. Many consider that measurement antiquated, but the DJIA (founded in 1896) still embodies the market in the popular imagination.

And with a $432 price (and an above-market-average price/earning multiple of 24), Boeing’s weight in the Dow is 11%, Bespoke said. But the stock is less than 1% of the S&P 500. And due to the price factor, of the 2,807 points that the Dow has gained in 2019, Boeing contributed 812 of them, almost one-third.

If not for Boeing’s run, the Dow would be up just 8% this year, instead of 11.6% as of the end of last week, Bespoke calculated. The year-starting performance for Boeing has been extraordinary: Only four other times has a stock rallied more than 30% through a March 1 close: Apple twice, Intel, and Microsoft.

Note that those are all tech stocks. Industrials have done quite well of late, although tech seems to have sloughed off its blues from 2018. From their December lows, Dow members Apple and Microsoft are up 19%. Non-member Amazon is ahead 26%. (These three have been trading places as the world’s most valuable company—although, of course, market cap is of no concern to the Dow).

Boeing has had little but good news in recent months. China has not slapped retaliatory tariffs on its jetliners, perhaps because it needs more of those passenger planes. Boeing is a major defense contractor in a time of Pentagon budget increases. And archrival Airbus has stumbled badly, ceasing production of its super-jumbo A380, which has sold poorly. Boeing, whose ticker symbol is BA, avoided the gargantuan plane race, to its credit.

The downside of Boeing’s Dow drive? As Bespoke warned, “even just a 10% correction in shares of BA would clip DJIA by more than 250 points.”

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