What it Takes to Move the Dow

Dow components Bank of America , Citigroup and GM are posting nice gains today, but that’s having very little impact on the Dow.

As the index now contains five stocks under $10 (GM, C, BAC, AA, & GE), the Dow Industrials has come under greater scrutiny on whether it is still a good gauge of the overall market. Since the Dow is a price-weighted index, for every dollar a stock gains or loses, the Dow will move about 8 points. This is true for each of the 30 Dow stocks, regardless of its price.

As a result, it takes significantly bigger percentage moves for a lower-priced stock to affect the overall index than it does for a higher-priced stock. For example, GM, which trades below $2, would have to move up nearly 57% if it were to move the Dow up 8 points. On the other hand, shares of IBM, which are priced near $90, would only have to move a little over 1% to move the overall index by the same 8 points.

Price Change Required to
(as of Friday’s close) Move Dow Up 8 Points
GM 1.77 56.50%
C 1.95 51.28%
BAC 3.79 26.39%
AA 6.29 15.90%
GE 9.38 10.66%
INTC 12.78 7.82%
AXP 12.97 7.71%
PFE 13.71 7.29%
DIS 17.53 5.70%
MSFT 18.00 5.56%
HD 19.46 5.14%
JPM 19.90 5.03%
DD 20.38 4.91%
KFT 23.51 4.25%
T 23.58 4.24%
CAT 26.66 3.75%
MRK 28.10 3.56%
VZ 28.81 3.47%
HPQ 31.24 3.20%
BA 36.31 2.75%
KO 42.84 2.33%
UTX 43.99 2.27%
MMM 47.25 2.12%
WMT 50.02 2.00%
PG 50.25 1.99%
MCD 54.57 1.83%
JNJ 54.65 1.83%
CVX 65.07 1.54%
XOM 71.23 1.40%
IBM 88.79 1.13%

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