Why is the Dow Outperforming?

Here’s a chart of how the Dow and the S&P have performed over the course of September to date. I chose the time frame because it was basically the period in which AIG, a Dow component, imploded.


The point of the chart is, of course, that the Dow is an unreliable average which shouldn’t be trusted. It only includes 30 stocks, and if one of them goes to zero, that can cause the Dow to significantly underperform the stock market as a-

Um, hang on a minute. The Dow is the blue line: it closed yesterday down 4.54% month-to-date. The S&P 500 is the red line; it closed yesterday down 5.95% month-to-date. Somehow, the Dow managed to comfortably outperform the S&P 500 despite having one of its thirty hands tied behind its back.

Is that because the S&P 500 is more financially based than the Dow? I don’t think so: the two are performing very much in line with each other today, and the Dow includes American Express, Bank of America, Citigroup, JP Morgan Chase, and also GE if you consider that a financial.

We might be seeing a small flight-to-quality trade here, where investors flock to what they consider the safest of the blue-chips. But I haven’t seen much indication of that. I suspect this is just another artifact of how crazy the markets have been of late, and there’s no point in trying to read anything into it.

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