I still don’t get it. If only a handful of companies were performing well, this might make sense to me. In addition to Ford’s record profits, Google had a smashing 3rd quarter that led to a 10% jump. The success of individual companies does not surprise me. But, the Dow is up 3% in Oct. and 6% over the last 3 months. NASDAQ? 5% and 10% respectively. How can these ‘broad’ index measurements perform so well in light of little good news about the current performance and future of the economy?
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The indexes are simply collections of these individual companies. It is more than a few companies outperforming expectations.
Take the Dow. IBM is one of the Dow stocks. IBM accounts for about 9.5% of the movement in the DJIA. From the end of August to today IBM is up about 15%, partly due to anticipated good earnings which were released in mid October.
The following 9 companies make up 50% of the weighting in the DJIA:
IBM
3M
Chevron
McDonalds
Caterpillar
United Technologies
Boeing
ExxonMobil
Johnson & Johnson
If these companies are doing well, the index will go up.
Similarly, the following companies make up 50% of the weighting og the QQQQ ETF, which tracks the NASDAQ.
Apple Inc.
QUALCOMM Inc.
Microsoft Corp.
Google Inc. (Cl A)
Oracle Corp. ORCL
Gilead Sciences Inc.
Research In Motion Ltd.
Cisco Systems Inc.
Teva Pharmaceutical Industries Ltd.
Intel Corp. INTC
Amgen Inc.
Amazon.com Inc.
If these comapnies are meeting/exceeding earnings, it will drive the index.
