The stock price of Boeing dropped nearly 14% today following the Ethiopian Airlines crash, killing 157 people on board. Shares were up slightly and closed at $ 400.01, dropping by 5.3%.
Even though Dow has not moderated demand, Boeing has the ability to make the index fluctuate in some way. And that is because, though there are thousands of listed companies in the United States, the Dow Jones Industrial Average only consists of 30 companies without a clear way. In addition, they are all decades old, large, and well recognized.
To compute the industrial average, the Dow Jones picks up the stock price of these companies, collates them up and divides with a number called the Dow Divisor. This figure, which changes over time, has been designed in such a way that it can easily be adjusted to take account of major structural amendments in the top 30 indexed companies.
The largest companies in the index do not essentially have the maximum power on this. And this owing to the calculation based on weighting with the stock price despite market capitalization. The share price is many a times multiples of almost all other companies in the index, with stock volumes being exceeded only by Microsoft and Apple. As a result, it has an inconsistent impact on the Dow, with a weight percentage of over 11%.
That makes the Dow a bit susceptible to its ups and downs, when Boeing goes south, it drives Dow with him. Similarly, when the price of Boeing spurs, the Dow Jones looks predominantly healthy. This is another reason why the Dow Jones is not fundamentally an exceptional indicator of the US economy, although being treat as such means that the alterations can have disproportionate consequences for the way shareholders and analysts treat the market.