I have been hearing rumors for several months that the DOW was interested in adding Apple to the DOW 30. The DOW which was originally 12 stocks is now 30. It's original purpose was to have various stocks across various sectors of the market and give an overall picture of the market. The DOW over the years all though still very influential to the market has moved further and further away from it's original purpose. The DOW is 30 of the best Blue Chip stocks, but over time the DOW has had the overwhelming tendency to be out of balance in the Blue Chip stocks it selects across sectors. Let's talk a little bit about what I mean as the addition of Apple to the Dow this past week is a good example.
There were two stocks on the DOW 30 representing the Communications sector of the market. Those were AT&T (T) and Verizon (V). The DOW voted to have Apple (AAPL) join the DOW and decided to ditch AT&T (T). So what is wrong with this. This unbalances the DOW. There will now be three Technology sector stocks representing the DOW and only one Communications sector stock representing the DOW. Also, you are removing AT&T which has thus far been in a struggle with a Apple who is up 60% from it's recent 7:1 split this past June 2014. Thus now making the DOW extremely out of balance across sectors of the market and not as good of a representation of the market overall.
Not only do we have the issue with Apple coming in and making the DOW lopsided, we also just recently had Visa (V) added to the DOW and they removed Bank of America (BAC). Again hardly a fair trade. Bank of America has struggled as have most large banks since the 2008 crash. While Visa has thrived as credit card service and comes into the DOW on the heels of a 4:1 split which will take place March 19. Again, making the DOW less of a reliable tool when looking across the board as to its true representation of the market overall.
Now lets look at what happened at the close this past Friday, March 6, 2015 as the DOW closed down $278.94. Now there is a nice little sting to your portfolio. Apple survived closing UP $0.19 which is in large part due to just being added to the DOW. But Apple (AAPL) does have some other good things going for it as well. They have the new Apple Watches coming out. Best Buy Co. (BBY) will be one of the main carriers of the Apple Watches with Target (TGT) and Nordstrom (JWN) expected to come on board. The age of Dick Tracy is here and Apple is not going to be left out nor will many other retailers in getting their share of the profits off the sales. And by the way, I just happen to have Nordstrom in my personal portfolio. I suggest you take a look at it too as it is a Wells Fargo approved stock pick. The lines are good on it and I too recommend Nordstrom for your long term portfolio. But getting back to why did the DOW drop $278.94 on Friday? Well the Feds said BOOO and everyone reacted. They are going to raise interest rates. So what, they need to raise interest rates. Lets look at a little history. Back when you were paying 10% interest on a Home Loan we also had low unemployment. The economy was good, you were not starving and the national debt was low. In part why the national debt is up is because of the government holding interest rates down. Obama with his flaws did lower spending but our government is subsidizing our economy of which part of is keeping interest rates low. Thus no money to pay off national debt. So it is a big vicious circle of robbing Peter to pay Paul. Interest rates WILL go up and it should not scare you. But if you want a big ticket item like that new 5 bedroom house in the suburbs or the brand new Cadillac or Mercedes you best be getting it now as you will soon be paying higher interest as time goes by. Interest rates will NOT be going lower than they are now, so plan for it. But wait a few weeks or so and the idiots on the floor of the NYSE will see the sky is not going to fall due to increased interest rates and the market will take another turn for the better. So don't even think about selling at this point.
Gus S.
Disclaimer:
Make sure to review any information found on this blog site with your personal financial advisor before making any decisions. I am providing general information and not financial advise. I am not a licensed stockbroker or financial advisor.
