Sunday, January 25, 2009

Dow Weighting

I've never been a fan of the Dow Jones index, but now there are distortions that make it seem downright silly! From John Maudlin's latest commentary citing Jim Bianco:
...if C, BAC, GM, AA, JPM, AXP and GE all open at zero, the DJIA loses 528.63 points. If IBM opens at zero, it loses 652.95 points [IBM has risen since then -- JM]. So, the DJIA says that IBM has more influence on the index than all the financials, autos, GE, and Alcoa combined.
The DJIA is not normal as the index committee is not doing their job during this crisis, possibly because to the political fallout of kicking out a Citi or GM. As a result, this index is now severely distorted as it has a tiny weighting in financials and autos.

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