Around the world, investors watch the Dow Jones Industrials as a measure not only of the 30 stocks in the average but also of the health of the entire global economy. Yet an obscure Dow average that few people even know about holds some interesting secrets about the broader stock market. Let’s look at this forgotten benchmark to see what it can tell us about the current bull market.
Getting the bigger picture
What most people refer to as the Dow is known as the Dow Jones Industrial Average, but over time, it has come to include far more than pure industrial companies. With everything from technology and telecom stocks to consumer-goods and financials, the Dow includes nearly every sector of the economy.
Most people are aware that there are separate Dow averages for the transportation and utility sectors. Those averages have few components and are much more focused, lacking the outside influence that the Dow gives to companies beyond the industrial sector.
But what many people don’t know is that there’s an overall average, the Dow Jones Composite, that incorporates all three of the other Dow averages. If you want to include stocks from every part of the economy, then the Dow Composite is the place to go.
How has the Dow Composite done lately?
Like the Dow, the Dow Composite has risen to new record highs lately, having eclipsed the average’s old 2007 highs earlier this year. But the Dow Composite has been setting new records for a lot longer than the Dow, as the Composite set a record on Jan. 25 and has risen more than 5% since then.
The strength in the composite has come largely from the transports. When you look at the best performers in the composite over the past year, the top five stocks on the list are all transports, with airlines representing the top four. Giants Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL) have posted gains of 75% and 60% over the past year on the strength of higher ancillary revenue from baggage fees and similar charges, and the recent consolidation in the industry has boosted their prospects immensely. For top performer Alaska Air Group, Inc. (NYSE:ALK), up 82%, the possibility of further merger and acquisition activity has heightened interest in the regional carrier.
By contrast, the utilities have contributed the least to the Dow Composite’s run. You have to go 13 deep into the top-performers list before you hit your first utility stock, NextEra Energy, Inc. (NYSE:NEE) , which is up 31% after shifting its portfolio away from hydroelectric power toward wind and solar power that qualify for more tax credits. For the most part, utility stocks have lagged because of sluggish economic activity and the impact of costly natural disasters, particularly the two major East Coast hurricanes that hit the Northeast during 2011 and 2012.
