By the Numbers

What it Takes to Move the Dow

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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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