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The world's largest manufacturer of jet aircraft has a huge effect on the Dow Jones Industrial Average.
Boeing's share price fell by nearly 14% today (Match 11) following the crash of Ethiopian Airlines, during which 157 people on board were killed. Equities rallied somewhat and closed at $ 400.01, down 5.3%.
Even if the downturn has not dampened the Dow, Boeing has the ability to rock the index in one way or another. This is because, although there are thousands of publicly traded companies in the United States, the Dow Jones Industrial Average consists of only 30 companies chosen without a clear method. Beyond that, all are decades old, large and well established.
To calculate the "industrial average," Dow Jones takes the stock price of these companies, adds them up, and then divides them by a number called Dow Divisor. This number – which changes over time – is designed to be easily adjusted to take into account any major structural change of the 30 listed companies. For the moment, it is 0.14748071991788.
The largest companies in the index do not necessarily have the greatest influence on it. This is because it calculates the weighting by the price of the shares rather than the market capitalization. Here at least, Boeing is a power station. Its stock price matches many multiples of almost every other company in the index, with stock volumes being overtaken only by Apple and Microsoft. As a result, it has a disproportionate influence on the Dow, with a percentage weight higher than 11%.
| No. | Stock | % Weight |
|---|---|---|
| 1 | Boeing | 11.26 |
| 2 | UnitedHealth Group | 6.32 |
| 3 | 3M | 5.35 |
| 4 | Goldman Sachs | 5.20 |
| 5 | Home Depot | 4.83 |
| 6 | McDonalds | 4.78 |
| 7 | Apple | 4.61 |
| 8 | Visa A | 3.93 |
| 9 | Johnson & Johnson | 3.68 |
| ten | IBM | 3.60 |
This makes the Dow somewhat vulnerable to its ups and downs: when Boeing heads south, he drives the Dow with him. Similarly, when Boeing's share price soars, the Dow Jones looks particularly healthy. This is another reason why the Dow Jones is not necessarily an excellent indicator of the US economy – although the fact that it is treated as such means that its changes can have disproportionate consequences on how analysts and shareholders treat the market.
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