Why the Dow is down when other stocks are up

NEW YORK, NY - APRIL 09: Traders work on the floor of the New York Stock Exchange on April 9, 2013 in New York City. The Dow Jones Industrial Average hit a new record trading high of 14,706 today, while closing slightly lower at 14,673.46. (Photo by Spencer Platt/Getty Images)
Spencer Platt

(MoneyWatch) As of 3:15 p.m. Friday, stocks had risen 0.76 percent, with the S&P 500 up 12 points and the broader Wilshire 5000 up 0.8 percent. But the Dow Jones industrial average (DJIA) was down 16 points, or 0.1 percent. What gives?

The answer is simple: IBM. The Dow is comprised of only 30 stocks, but Big Blue counts for a full 10.94 percent of the index today. IBM missed analyst expectations and in late trading activity was down 8.15 percent, or $16.88. If IBM had trounced earnings expectations, headlines likely would have have read, "Dow leads stock surge."

If the Dow were comprised of just the other 29 stocks, according to my calculations it would be up about 0.89 percent, or more than either the S&P 500 or Wilshire 5000.

The Dow is perhaps the most widely quoted market index, but it's not particularly reflective of the wider U.S. market. Total returns of the broadest stock indexes, like the Wilshire 5000, are far more indicative of overall stock returns.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.