Dow Today Versus Its 2007 Peak

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Ploutos
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Given the importance of the numerical milestone reached yesterday in the psyche of some investors, a look at the Dow Jones Industrial Average (NYSEARCA:DIA) today versus the Dow when it was last at its previous peak on October 9th, 2007 is warranted. The Dow got its start in 1896 as a means for synthesizing the movements of industrial stocks into a single number. While its adjusted price-weighting and narrow coverage universe are now archaic in the days of computerized calculations and alternative weightings, the DJIA has retained its status as a stock market bellwether. Comparing the valuation of the constituents today versus the valuation when the index was last at this level can shed light onto general market valuation.

Before we can aptly compare the index at today's level versus its previous October 2007 peak, we must understand how the constituents have evolved over this period. With only thirty constituents, additions and deletions of constituents and their change in weighting can have a big impact on this stock market gauge. Over the past five years, there have been five new constituents added to replace deletions as seen below.

Constituents that comprised 15% of the index at its 2007 peak have been removed. AIG was removed from the index in September 2008 in the wake of its government bailout. Altria's spin-off of Kraft (KRFT, MDLZ) and Phillip Morris International (PM) narrowed the company's focus to largely domestic tobacco, and made the company less of the global leader preferred by the index. Honeywell (HON) was the smallest of the industrials upon its departure, and its exclusion in part marked the shift towards a services-driven economy. With Citigroup's shares down ninety percent after its own taxpayer financed bailout, the company exited the index in June 2009. General Motors left via bankruptcy.

The new

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Ploutos profile picture
21.15K Followers
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

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