March Madness and the Dow – Who Wins? And can we see patterns from one year to the next?

Newspapers, radio, and TV news programs refer to the Dow Jones Industrial Average every day, calling it the Dow, sometimes the Dow Jones or even the DJIA. And economists and financial advisors pay close attention to its daily changes and the longer trends. But what exactly is the Dow Jones Industrial Average, does it really matter and can one see performance patterns from year to year?

A Brief History

The Dow Jones Industrial Average (“the Dow”) is a stock market index, used to assess movements in the market and its overall strength or weakness. It was created in 1896 by Wall Street Journal editor and co-founder of Dow Jones & Company, Charles Dow.

The Dow tracks the market performance of 30 large, American companies. Initially, the Dow had only 12 stocks and these included such golden oldies as American Cotton Oil Company, U.S. Leather Company, and Distilling & Cattle Feeding Company. In 1920, the Dow expanded to 20 stocks and then to 30 stocks in 1929.

Due to its age, the Dow Jones Industrial Average represents a continuous chart of our nation’s economic growth, along with its ups and downs. The Dow first hit 1000 in late 1972; hit 10,000 in March, 1999; and reached 17,000 in July, 2014. In January, 2018, the Dow closed above 25,000.

Let’s Play March Madness with the Dow

Some people think it’s a good idea to buy last year’s best Dow performers, figuring that they will continue to perform well and reward investors. Others prefer
to buy last year’s worst Dow performers, thinking
that their fortunes will magically reverse. So, we decided to play our own version of March Madness and rank all the companies in the Dow based on
2017 performance and then pit them against one another. So, using performance from 2017, here’s what we found:

2017’s Winners and Losers

2017 was a very good year for the Dow Jones Industrial Average as 25 of its 30 stocks posted gains and the Index itself was up more than 24% on the year.

There were two huge winners in 2017 and three more stocks that posted very solid gains above 40%. Let’s look at the Dow 2017 Madness winners:

Boeing Co. up 89%
Caterpillar up 68.9%
Visa Inc. up 46.1%
Apple Inc. up 46.1%
Wal-Mart Stores Inc. up 42.9%

Remember that 2017 was a very good year for the DJIA and only 5 companies lost value? Well, those 5 companies are also the losers of the Dow 2017 Madness:

General Electric Co. lost 45%
IBM lost 7.6%
Exxon Mobil Corp. lost 7.3%
Merck & Co. lost 4.4%
Verizon Communications lost 0.8%

Compare the Dow 2017 Madness winners and losers with the winners and losers as ranked by 2016 performance. The Dow 2016 Madness winners were:

Caterpillar returned 36.5%
UnitedHealth Group returned 36.0%
Goldman Sachs returned 32.9%
JP Morgan Chase returned 31.6%
Chevron returned 30.8%

The Dow 2016 Madness losers included:

Pfizer returned 0.6%
Visa returned 0.6%
Disney returned -0.8%
Coca-Cola returned -3.5%
Nike returned -18.7%

See any patterns from 2016 to 2017? Except for Caterpillar showing up on the same list two years in a row, I don’t.

But here is what I do know: every large, powerful company has good and bad years. And trying to determine future performance based solely on past performance is a bad idea.

So, who will the best performer for the rest of 2018? It’s anyone’s guess. Hence, the Madness.

And the reason mutual funds are so popular.

Distributed by Financial Media Exchange.