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Let’s talk about the Dow

Traders work on the trading floor of the New York Stock Exchange in New York City on the afternoon of July 18, 2023.

Michael Santiago | Michael M. Santiago Getty Images News | Getty Images

This report is from today’s edition of CNBC’s Open Daily, our new international markets newsletter. The CNBC Daily Open keeps investors up-to-date with everything they need to know, no matter where they are. Like what you see?you can subscribe here.

what you need to know today

more mixed market
US stocks It ended mixed on Friday. The Nasdaq Composite was the only major index to fall. The pan-European Stoxx 600 rose 0.3%, led by a 1.2% rise in household goods, likely helped by news that UK retail sales rose 0.7% mom in June (better than the 0.2% forecast).

Goodbye China, Buy Tesla
Prominent tech investor Cathie Wood revealed on Thursday that its Ark Innovation ETF has fully exited stocks that generate income from China. That means stocks like Tencent and KE Holdings will be eliminated, while the fund’s holdings of Wood’s favorites Tesla, Coinbase and Roku will be further consolidated. Wood may be right: ARKK shares are up more than 50% this year.

The U.S. economy is booming?
Morgan Stanley made a “substantial upward revision” to its forecast for the U.S. economy. The bank expects GDP to grow by 1.9% in the first half of this year, almost four times the initial forecast of 0.5%. The bank expects GDP to grow 1.3% in the second half of the year, compared with 0.6% a year earlier.joe biden’s
Infrastructure Investment and Jobs Act “A massive infrastructure boom is being driven,” wrote Ellen Zentner, chief U.S. economist at Morgan Stanley.

oil demand
Oil prices could soar in the second half of the year as supply fails to keep up with demand, Joseph McMonigle, secretary general of the International Energy Forum, told CNBC. “In the second half of this year, demand from India and China combined will increase by 2 million bpd,” he said. However, McMonig believes OPEC+ will deal with “significant supply imbalances.”

(PRO) A fulfilling week
There will be a slew of economic data and earnings reports this week, with the Federal Reserve meeting to decide the direction of U.S. interest rates. CNBC Pro’s Sarah Min breaks down what analysts are expecting and how they are adjusting their portfolios for a tough week.

the bottom line

let’s talk Dow Jones Industrial Average and why it is better than S&P 500 Index and Nasdaq Composite Index last week.

First, numbers. The S&P and Dow were little changed, while the Nasdaq Composite fell 0.22% on Friday. (Technically, the Dow was up 0.01% for a 10-day winning streak, but that’s so insignificant that I don’t think it’s worth the fuss.)

On a weekly basis, the S&P was up 0.79% and the Nasdaq was down 0.57%, but the Dow was up an impressive 2.08%.

The performance of the Dow Jones depends largely on how the index is composed and calculated. It includes only 30 stocks, ostensibly to be representative of the broader U.S. economy. for example, Goldman Sachs and JPMorgan on behalf of the bank; apple and Microsoft display technology; nike and Procter represent consumer goods.

Another key difference between the Dow and the S&P and Nasdaq is that it is price-weighted, meaning that the more expensive the stock, the more influential it is on the index. In contrast, the other two major indexes are capitalization-weighted, meaning that the higher the total equity value of a company, the more influence it has on the index.

Now, let’s take a look at what stocks did on Friday.

Nvidia down 2.66%. Its market cap exceeds $1 trillion. Unsurprisingly, therefore, it has had the most negative impact on the S&P and Nasdaq. Dow? The index doesn’t even include Nvidia, so it’s spared.

On the other hand, the Dow Jones benefits from benefits such as joint health and Goldman Sachs. Their share prices are high, around $500 and $350 per share, respectively, but their combined market caps are relatively low. Those gains won’t have much impact on the S&P and Nasdaq, but will boost the Dow.

What does it mean? Let’s be honest: not much. Over the past 15 years, the Dow and S&P have moved in the same direction 94% of the time, according to CNBC calculations. So while the major indexes have certainly diverged lately — outside of this week, the Nasdaq is up 34% for the year, the S&P is up 18%, and the Dow is up a measly 6% — it doesn’t really matter which index you track in the long run. Lesson here? Don’t treat short-term fluctuations as long-term trends.

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