How did the Dow get to 20K? Think Goldman, Boeing and IBM

AP News
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Posted: Jan 26, 2017 4:35 PM
How did the Dow get to 20K? Think Goldman, Boeing and IBM

NEW YORK (AP) — Dow 20,000 wasn't exactly a team effort.

The index climbed to the 20,000 mark from 19,000 largely because of three stocks: financial firm Goldman Sachs, aerospace giant Boeing, and technology and consulting company IBM. Put together, those three companies are responsible for almost half the gain that brought the blue chip index to its latest millennial mark on Wednesday. It took the Dow just two months to go from 19,000 to 20,000, one of its quickest moves between round number milestones.

The big jumps for Goldman, Boeing and IBM reflect the fact that investors expect financial firms and industrial companies to do very well. They're so optimistic that they're buying some very expensive stocks, as they are betting that the companies will reap large gains if economic growth picks up and the Trump administration cuts regulations that might keep their profits in check.

The Dow had looked like it was going to blow past the 20,000 mark in the middle of December. It stopped tantalizingly close to that mark, in large part because a big rally in Goldman stock ended. Goldman led the index rapidly higher after the election and came close to an all-time high, but it's trading a little lower today than it was a few weeks ago.

It's worth noting that Goldman is the most expensive Dow stock by a wide margin and IBM is the next-most costly. That matters because the Dow is weighted by stock price. When Goldman Sachs moves from $200 to $201, or one half of one percent, that counts exactly as much as Cisco rising from $30 to $31, which would boost that company's stock price by more than 3 percent.

Other indexes like the Standard & Poor's 500 and the Nasdaq don't work that way. They're weighted by the market value of a company, and many investors feel that makes those indexes a better reflection of the broader market.

Despite the huge gains the index has made in the last few months, some Dow stocks aren't doing that well. Wal-Mart, which has lost the equivalent of about 20 Dow points since Nov. 22, is doing the worst. Six other components are down, and a few others haven't moved much.

The stocks in the Dow are more expensive than some of their peers, but they're also less risky: while a small company in the Russell 2000 index might bring home bigger gains than a Dow component, as they did in the aftermath of the election, those companies are also more likely to suffer big setbacks or fail altogether.