DJIA swings on politics in 2012, S&P Dow Jones Indices data show
Like elsewhere in the world, politics played a big role in determining the performance of the Dow Jones Industrial Average index over the past year, according to data published by S&P Dow Jones Indices.
Jamie Farmer, managing director at S&P Dow Jones Indices, said that the biggest single day gain in 2012 – 286.84 points or 2.37% on 6 June – came on hopes of further economic stimulus. But the biggest single day of losses – -312.94 points or -3.26%, came after Barack Obama’s re-election as president amid persistent fears of a fiscal cliff and economic weakness in Europe.
That noted, how did did this price weighted index manage to provide another year of positive returns to investors?
Perhaps surprisingly, financial services were the biggest contributor.
“They were towards the top of the scale, in terms of contribution to the performance of the DJIA in 2012, mainly because financial services can perform well in recovery markets, coming out of recession,” Farmer said.
“Certainly, we see the early stages of a recovery here in the US. Unemployment is dropping, GDP is ticking up slightly, home prices are improving, and sales are increasing. Financials performed well despite some headwinds, such as regulatory concerns and some overall performance concerns.”
Consumer services were another big driver of the index’ performance.
“Think about Home Depot, Walt Disney, Wal-Mart; these companies were positive contributors to the performance over 2012. This is a reflection of the budding recovery we’re seeing in the US, and discretionary spending on, for example, entertainment and home improvement.”
Home Depot alone contributed some 17% fo the DJIA gain for the year, according S&P DJI figures.
Farmer brackets the improving US economy together with Europe and the presidential election as the three ‘Es’ that represented the key narratives affecting US investors last year.
“The market may find some confidence depending on the degree to which we are getting clarity on some of those narratives – the election is out of the way, there seems to be some improvement in Europe overall, and the US economy is coming out of the doldrums by some measures.”
Furthermore, at the start of 2013 the DJIA enjoyed a bounce after the fiscal cliff agreement was announced – further removing uncertainty from the US stock market.
“That performance was driven by the fiscal cliff legislation that was put in place. Even though it was a partial solution, the markets found some confidence at least in that measure.”
Another key change affecting the index in the past year is the prevalence of dividends. S&P DJI as an organisation has felt the impact of dividends in the form of demand from clients to provide dividend indices, as investors seek out income amid record low interest rates.
“Anything dividend focused has been enormously popular; and we’ve launched a whole suite of dividend indices over the past 18 months to feed that demand,” Farmer said.
“You’ve seen the interest from the investors, and you’ve seen the companies increasing their payouts – it’s been a nice confluence of those factors.”
The data suggests that as of 31 December 2012, all 30 stocks in the DJIA were paying dividends, with yields ranging from 0.35% up to 5.22%.
Of the total return from the index of 10.24% over the year, it is estimated that 3% of this return was the result of dividends reinvested. This mirrors a trend among US companies more broadly, with the S&P 500 index also seeing a very high level of payouts.
However, looking ahead Farmer is unwilling to make any predictions on where the index might head, such as whether it could deliver a fifth year in a row of annual gains.
Performance statistics suggest that the annual performance of the index has varied considerably from year to year over the past decade.
|Long Term Performance|
|1 Year||3 Year||5 Year||7 Year||10 Year|
|Historical Annual Performance|
|Company Name||2012 Closing Pr.||Closing Wt.||’12 Points||’11 Points|
|Home Depot Inc.||61.85||3.62%||151.31||52.83|
|Travelers Cos. Inc.||71.82||4.21%||96.91||26.19|
|Walt Disney Co.||49.79||2.92%||93.23||-0.08|
|JPMorgan Chase & Co.||43.97||2.58%||82.16||-69.4|
|American Express Co.||57.48||3.37%||78.34||32.17|
|United Technologies Corp.||82.01||4.81%||68.15||-42.61|
|Wal-Mart Stores Inc.||68.23||4.00%||63.55||44.12|
|Int’l Business Machines||191.55||11.23%||57.61||280.94|
|Bank of America Corp.||11.6||0.68%||46.23||-58.88|
|Johnson & Johnson||70.1||4.11%||34.4||28.23|
|Kraft Foods Inc. Cl A||NA||NA||32.67||44.27|
|Merck & Co. Inc.||40.94||2.40%||24.14||12.56|
|General Electric Co.||20.99||1.23%||23.39||-2.88|
|Exxon Mobil Corp.||86.55||5.07%||13.56||88.1|
|Cisco Systems Inc.||19.65||1.15%||12.2||-16.27|
|Procter & Gamble Co.||67.89||3.98%||9.22||18.01|
|E.I. DuPont de Nemours||44.97||2.64%||-6.76||-31.03|
|Unitedhealth Group Inc.||54.24||3.18%||-14.9||NA|
Odds & Ends