Wally and All: From today's NYT:
" The S&P is based on the change in a company's market capitalization -- the product of the change in price and the amount of stock outstanding. The bigger a company's market cap, the bigger its impact.
In the last year and a half, investors have been favoring a very small group of big, well-known stocks. More of them are in the S&P than in the Dow. Thirteen stocks, according to Merrill Lynch, accounted for over half of this year's move in the S&P.
But only five of them -- Wal-Mart Stores, IBM, Merck, Exxon and General Electric -- are in the Dow. Those not in the Dow, but in the S&P, were Microsoft, Intel, Cisco Systems, Lucent Technologies, Dell Computer, Pfizer, Home Depot and Time Warner. At the end of November, 50 stocks accounted for half the total market capitalization of the S&P 500, its greatest bias toward bigness in 16 years.
David Blitzer, chairman of the index committee at S&P, noted that if the S&P 500 index were calculated on a basis that weighed each stock price equally -- which would bring it closer to the way the Dow is calculated -- it would be up only 10.8 percent through November. That is because almost half of the stocks in the S&P are down for the year.
But in an index that favors big market caps, the stocks that have dropped have much less impact because the better performers are so much bigger.
In addition, it is not the best price gainers that account for most of the jump in the S&P 500. Instead, it is the companies whose market capitalizations have increased the most.
The 10 S&P stocks with the biggest price moves through Wednesday were Dell, EMC, Apple Computer, Ascend Communications, Lucent Technologies, Cisco Systems, Unisys, MCI Worldcom, Staples and Providian Financial. Only three of these are among the top 10 movers of the S&P.
General Electric was one of the top movers of the S&P, but its price is up just 34 percent, well below Dell's increase of 242 percent. Microsoft, having a big year, is up 117 percent. Providian Financial, the 10th-best performer, is up 130 percent.
The question is what index reflects best what is going on.
John A. Prestbo, editor of the Dow Jones indexes, said: "Despite the vast difference in the stocks and the difference in the calculation, over time the Dow and the S&P correlate 95 percent of the time. They are both telling the same story about the market."
Blitzer of S&P argues that his index is a better reflection of the entire economy because it is bigger than the Dow and because it is changed more regularly with the addition and subtraction of stocks. America Online will be added this week." |
