The Million Dollar Way (The Bakken Oil Blog): Dow Components, XOM -- Flashback, Update -- Decisions With Major Consequences -- June 1, 2024

Locator: 48019DOW.

Updates

June 2, 2024: another view. I don't think this op/ed added anything that hasn't been said all year.

Original Post

This is a huge story.

Disclaimer: I've lost track of exact times/days regarding this story but the "point of the story" remains intact).

Thursday and Friday (or whenever it was late this week), I saw the Dow, as we all did, and I thought I would have an incredibly bad day -- or bad week -- (with regard to the market). Fortunately early on, CNBC clarified that the 300-point drop in the Dow was due "entirely" to CRM (Salesforce). Since I held no CRM (that's another story) I had no concerns.

By the end of the day (Friday) with the Dow up over 600 points I had one of the best days ever (with regard to the market).

But I think a bigger story has not been mentioned yet. Actually there are several big stories not yet mentioned but I will focus on this particular story.

Let's check the 5-day CRM ticker for Friday, May 31, 2024.

So, what do you notice? What's the story?

Remember, at the top of the day, Thursday, May 30, 2024, the Dow was down 500 points at the opening from the previous close.

By the end of the week, the Dow had the best day of the year.

But yet, CRM had recovered very, very little from the original plunge.

This is the story:

if one stock, CRM in this case, can drag the Dow down 300 points, and then,
the Dow recovers the next day by 600 points, it suggests to me that,
the rest of the Dow components (or some of the Dow components) had an "out-size" effect to counteract CRM

The Dow 30 close for each of the components can be found here. At the link, one must scroll down a bit. I assume there are more user-friendly sites available.

Every Dow component closed up (and closed up nicely) by the end of the day Friday, except for two: Amazon and CAT.

Which leads to at least two more stories, but those stories will have to wait for another day.

********************************
Down Component History: CRM Replaced XOM In 2020

But back to the two linked stories:

Link here. Barron's.

Link here. CNBC.

2020? Hindsight has 20/20 vision.

The Dow vs the S&P 500.

If one only has 30 components, and two of them are "heavy-weight" oil companies (CVX and XOM) I have no trouble taking one out to be replaced with something else. The "something else" and the "timing" of the decision are problematic.

In this case, making such a monumental change during an unprecedented pandemic / lock down which greatly affected oil demand seems ill-advised -- again, hindsight is 20/20.

The Dow components, link here.

Why did CRM (a tech company) not replace one of these:

INTC
CSCO

But going a step further:

I can easily name several -- maybe as many as a dozen tickers -- on the Dow that really, really skew how incredibly amazing the stock market can be for stock pickers.

FANG stocks and the "Magnificent 7" identified by Jim Cramer some years ago and very few of those stocks in the Dow 30. Of the FANG / Magnificent 7:

AMZN
AAPL
MSFT

Meanwhile, we still have these:

CSCO
IBM
INTC
JNJ
KO
3M
VZ
DIS
DOW

One almost wonders if the Dow 30 "committee" -- when replacing XOM with CRM in 2020 -- was being a bit too woke?

It is what it is. But it certainly reminds Gen Xers and Millennials that the Dow 30 "committee" is still enamored with its "legacy" components.

On another note, not doing this on purpose (not to be taken out of context), but for the past two years I have pivoted from "investing" in the Dow and "investing" in the NASDAQ.

Disclaimer Briefly

Reminder: I am inappropriately exuberant about the US economy and the US market, I am also inappropriately exuberant about all things Apple.

See disclaimer. This is not an investment site.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here.

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.

Reminder: I am inappropriately exuberant about the US economy and the US market, I am also inappropriately exuberant about all things Apple.

Some additional thoughts:

NASDAQ: by market cap -- not manipulated -- simply number of shares x price/share.

Dow 30: incredibly manipulated:

price-weighted
adding just the price of shares (which, of course, makes no sense); and, then
the divisor, entirely manipulated
not all economic sectors represented
economic sectors that are represented, totally manipulated
changes to the Dow 30 are rare (very, very rare, and seemingly capricious)

On the other hand, the S&P 500, completely rule-based:

all economic sectors are represented
is very dynamic
changes to the S&P 500 are rule-based
one rule: an S&P 500 component must have positive earnings for the most recent four quarters
is much more closely aligned with the US economy because of its dynamic emphasis/focus based on rules

For newbie investors with a 30-year horizon:

be heavy-weighted in the NASDAQ
be heavy-weighted in the S&P 500, if one wants to be a bit more conservative
ignore the Dow 30

The Million Dollar Way (The Bakken Oil Blog)

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Saturday, June 1, 2024

Dow Components, XOM -- Flashback, Update -- Decisions With Major Consequences -- June 1, 2024

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