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AIG Still Bears Weight in the S&P

AIG Still Having Some S&P Impact

Despite all of the developments this week, with a current market cap of $5.5 billion, AIG remains bigger than just over a quarter of its fellow S&P 500 components. The S&P 500, which is a market cap-weighted index, gives bigger stocks greater impact on the index’s performance. As a result, AIG still has more of an impact on the S&P 500 than 135 companies on the index.

Dow 30 or Dow 29?

Conversely, the Dow Jones Industrial Average is a price-weighted index. Therefore, stocks with higher prices will move the index more. While AIG still remains a Dow component, its $2.10 price gives it very little weight in moving the index.

Consider this…

If IBM – the Dow’s highest-price stock – moves 1% from its price of $114.50, it would have moved about $1.15. On the other hand, a 1% change in AIG would move its price about $0.02. Because the Dow’s point change depends on the each components’ price swing (not percentage change), a 1% move in IBM would move the index about 9 points, whereas that same 1% move in AIG would only move the index about 0.16 points (that’s right, a very small fraction of one point).

Evidently, as long as AIG hovers at these low-priced levels and remains part of the Dow 30, in actuality, only 29 companies will seemingly have a significant impact on the Dow Jones Industrial Average.

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