President Trump often quotes the strong performance of the Dow Industrials on his watch. John Authers suggests he should not judge himself by the stock market; and if he does, he should use a different index.
Hello, and welcome back to The Note. The Dow Industrials got through 26,000 early today for the first time ever. It's scarcely more than a week since it got through 25,000 for the first time. Now that prompted a huge amount of self-congratulation from the president, and it prompted me to write a note in response, which I headlined just with a scream. There is something about politicians taking credit for the Dow Industrials that really makes me quite angry.
I'd now like to try to explain why, using a series of charts in the old retro style which I drew up myself earlier. Now first of all, let's take a look at how the Dow performs compared to the S&P 500. The S&P 500 is very widely used in the markets. Almost nobody uses the Dow any more. And you can see that over the last year, it really does make a difference. The S&P hasn't done as well as the rest of the world. The Dow Industrials has done very much better than the rest of the world. So it makes a difference which you should choose. And you should not, in my opinion, choose the Dow.
The main reason for that is because of these two great companies, Boeing and General Electric. Boeing has had a fantastic time since President Trump took office. It's more than doubled. Meanwhile, General Electric, in round numbers, has roughly halved. They're the best and worst performing stocks that make up the Dow. If we take a look at how the total value of those two companies has varied - that's where you add Boeing and General Electric together - you can see that in total, they are actually slightly smaller combined than they were a year ago. There is, between them, the rise of Boeing and the fall of General Electric has led to a slight fall in the value of the stock market out there.
Now, however, let's take a look at the impact on the Dow. So the Dow, as a result of Boeing and GE having their results, just if you take into account those two companies the Dow, as you can see, is up almost 6% even as their value has fallen. If you want to know why that is, it's because the Dow is weighted not by the actual value of a company but by the price that one share in that company happens to trade at.
Boeing has a very high share price, so it's very heavily weighted. General Electric has a very low share price, so it's not very heavily weighted. The result is absurdity. These two companies have fallen in value, and they have caused a very, very significant rise in the value of the Dow. No sensible person would ever use this as a yardstick.
So instead, let's take a look at how the S&P 500 - the index that people really do use to measure the market - has performed under the president. And if we compare how things have gone so far for the S&P since inauguration day with how they performed under the first and second terms of President Obama, you can see that very surprisingly, the stock market has done very well over the last year. There's certainly no denying that. It actually hasn't done as well as it did over the equivalent periods of either of President Obama's two terms in office.
Given that the current president is complaining bitterly that we're not giving him enough credit, and that if stock markets had performed like this under President Obama, there would have been a lot of publicity for it, I think this is quite an important piece of information. The president is not actually doing as well if you judge him by the stock market as he appears to think he's doing.