Submitted by Nicholas Colas of DataTrek research
US stocks may be hitting new highs, but no one cares.
Google search volumes for “Dow Jones” – by far the most popular stock market query – sit near one-year lows. Going into Holiday spending season, that’s actually good news; online searches spike when markets swoon and consumer confidence often drops with them. As for the stocks driving the Dow to new highs, AAPL is +20% of the YTD move but HD, GS, MSFT, V, UTX and JPM are collectively 50% of the advance. A good balance of names, indicative of a healthy rally.
For Data we’d like to discuss the Dow Jones Industrial Average through 2 different perspectives:
The first uses the “Average” as a proxy for US retail investor sentiment by looking at how often Americans Google the term “Dow Jones”. Over the years we have found this to be an accurate real-time measure of investor fearfulness. Ordinarily, Americans ignore day-to-day moves in equity prices. But when things get choppy, they Google “Dow Jones” more than any other market measure to see why markets have gone pear-shaped.
Here is the 12 month Google Trend chart for “Dow Jones” using just US-based queries:
Three quick takeaways:
- Even with the Dow hitting all-time highs this week, search interest is at among its lowest levels over the last 12 months. Based on our experience with the data, this is entirely normal.
- Peak periods of Google search volumes over the last year have occurred during market swoons (late December, mid-late May, mid-August). The worst was at the end of last year.
- On balance, this is good news since the US economy is heading into Holiday shopping season. Yes, less than half of Americans own stocks but equity markets are still important to general consumer confidence.
Now, on to a different question: exactly why is the Dow at all-time highs, and what might be the cause of any further advance? Three points on that:
- Apple is the largest contributor to the Dow’s 4,165 point YTD advance, adding 908 points to the Average this year (22% of total gains).
- 6 other names make up half of the YTD gains: Home Depot (459 points), Goldman Sachs (362 points), Microsoft (322 points), Visa (320 points), United Technologies (309 points) and JP Morgan (216 points). All are up +30% on the year, so it’s not just their weightings (at least 3% each) driving the Dow higher.
- As far as important laggards that could assist the Dow to fresh highs from here, there are four: Boeing (8.8% weight, +10.7% YTD), United Health (6.2% weight, flat on the year), McDonald’s (4.7% weight, +9.5% YTD), and 3M (4.3% weight, +8.7% YTD).
Also worth noting: despite the Dow’s inability to own high-priced names because of its anachronistic price weighting, that is not the source of the Dow’s YTD underperformance relative to the S&P 500 (4.8 percentage points). The data:
- Amazon ($1,796), +19.6% YTD, and Google ($1,292), +24.8 YTD, are up nicely but nowhere near as much as Dow components Apple (+63.1%) or Microsoft (+41.8%).
- The real problems are those laggards we mentioned above (BA, UNH, MCD and MMM). If those 4 names had all performed inline with the Dow this year, the difference between the DJIA and the S&P 500 would be less than 1 percentage point.
Wrapping up: while many market watchers dismiss the Dow as irrelevant, it still reinforces two important themes. First, Americans only care about stocks when they decline quickly so the current slow-motion equity melt-up is good (but not great) news for consumer confidence. Second, the broad base of Dow names pushing the Average higher highlights that many sectors are working to create new highs. Going into a seasonally strong period for US stocks, that is a positive sign.