Opinion: Richard E Walrath and Patricia L Johnson

The Stock Market goes up when there is news about the US and China getting together on trade talks. Then it goes down when this Administration cancels the talks. This produces a yo-yo effect on the market, up today, down tomorrow, but otherwise the trend would probably be down. The market as it exists, under this Administration, is far too volatile.

It all began in the late 1800’s, when Charles Dow and Edward Jones launched the Dow as a simple means of determining a measurement of 12 companies contributing to America’s economy. By 1928 the Dow Jones Industrial Average had grown to 30 stocks and has remained at that number since.

As time passed various companies were replaced by others, but the number of companies has remained at 30. The total DJIA reported on a daily basis is a price-weighted average of the total of the 30 stocks; divided by the Dow Divisor, making the value of this particular economic indicator questionable from the onset.

For each $1 change in the value of the of the 30 stocks in the DJIA, the market goes up or down by a point spread. We’ll use the Dow Divisor as of April 2, 2019 as an example. The divisor was 0.14744568353097 divided by 1 = 6.792 points. So, if one of the 30 stocks was to go up by $1, the DJIA average would have increased by 6.792 points.

The entire problem with this method of determining an average, is a $1 loss on a $10.00 stock is far more significant on a percentage basis than a $1 loss on a $100 stock, and that difference is not taken into consideration in the methodology.

On June 26, 2018 Walgreens Boots Alliance [WBA], replaced General Electric [GE] as one of the 30 stocks in the DJIA. GE, by the way, was one of the original 12 stocks in the DOW and has remained in the average until Walgreens stock was added. Walgreens stock trades around $52.56, while GE stock is going for $8.71. Seems like replacing one stock with another that’s worth six times as much, is a relatively simple way to increase the total market value. If you go one step further and multiply the number of outstanding shares of GE stock by six, you might be looking at some pretty hefty numbers.

It seems fair to say that when it comes to the stock market, there’s only one number that matters and that’s the average return. As you can see from the following, 2016 was a good year, 2017 was an excellent year (remember the former Administration economic policies were still in effect for the majority of 2017) while 2018 was the worst year for stocks in a decade.

The Dow Jones Industrial Average did not return 13.54% in 2016, although that is probably a number that you’ll see quoted. Adjusted for dividend reinvestment, the 2016 Dow Jones Industrial Average Return was actually 16.47%. That’s a full 2.93% points higher due to reinvested dividends.

2017 Dow Jones Industrial Average Return. The Dow Jones Industrial Average returned +24.39% in 2017. Using a calculation which includes dividend reinvestment, the Dow Jones returned +28.11%.

2018 Dow Jones Industrial Average Return. The Dow Jones Industrial Average returned -5.97% in 2018. Using a calculation including dividend reinvestment, the Dow Jones returned -3.48% in 2018.

There are two economic numbers the majority of Americans are familiar with; job creation and the stock market. The number of jobs created under this Administration are definitely questionable, and the market ups and downs definitely appear to be manipulated.

If you’re a parent, you know what it’s like for your kids to come home from school advising they need to sell xx number of candy bars for this or that school project. Being the good parent you are you call your friends, neighbors and co-workers and invite all of them to purchase the candy.

Is this Administration doing the same thing? When the majority of your cabinet members are wealthy, when you own numerous golf courses in the US where most of us couldn’t afford the entrance fee, how difficult is it for you to ask John Doe or Jane Smith to buy a little more stock in this company or that company? How difficult is it to actually manipulate the ups and downs of 30 stocks?

Over the past nineteen years there have been several occasions when we have experienced large increases or decreases in the DJIA in any given day. The Great Recession is an excellent example. During 2008 and early 2009 there were six instances where there was a large increase and four instances of a large decrease in the daily DJIA.

The Great Recession was a catastrophic event and major upsets were expected. We have not had any catastrophic events in 2018 or 2019, yet the DJIA had six instances in 2018 with large increases and seven instances with large decreases. So far in 2019 there have been three instances of large increases and five instances of large decreases.

Without a doubt there is something not quite kosher with this particular index.

Richard E Walrath is former Budget Analyst for Ohio State University, currently residing in Ohio with his family. Patricia L Johnson is a former special assignment writer/photographer located in the Midwest.