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.”

Dividends

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
7.26% 25.66% -1.21% 22.27% 57.09%

 

Historical Annual Performance                  
2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
7.26% 5.53% 11.02% 18.82% -33.84% 6.43% 16.29% -0.61% 3.15% 25.32%

 

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
3M Co. 92.85 5.44% 84.28 -34.59
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
Coca-Cola Co. 36.25 2.12% 42.51 31.79
Johnson & Johnson 70.1 4.11% 34.4 28.23
Kraft Foods Inc. Cl A NA NA 32.67 44.27
Pfizer Inc. 25.08 1.47% 26.2 31.26
AT&T Inc. 33.71 1.98% 25.88 6.51
Merck & Co. Inc. 40.94 2.40% 24.14 12.56
Verizon Communications 43.27 2.54% 23.76 32.85
General Electric Co. 20.99 1.23% 23.39 -2.88
Boeing Co. 75.36 4.42% 15.07 61.23
Exxon Mobil Corp. 86.55 5.07% 13.56 88.1
Chevron Corp. 108.14 6.34% 12.84 114.66
Cisco Systems Inc. 19.65 1.15% 12.2 -16.27
Procter & Gamble Co. 67.89 3.98% 9.22 18.01
Microsoft Corp. 26.73 1.57% 5.47 -14.83
Alcoa Inc. 8.68 0.51% 0.2 -51.01
E.I. DuPont de Nemours 44.97 2.64% -6.76 -31.03
Caterpillar Inc. 89.58 5.25% -7.47 -23.16
Unitedhealth Group Inc. 54.24 3.18% -14.9 NA
Intel Corp. 20.63 1.21% -28.33 24.37
Hewlett-Packard Co. 14.25 0.84% -87.85 -123.67
McDonald’s Corp. 88.21 5.17% -91.38 178.39
TOTAL     886.58 640.05

 

Odds & Ends

  • There were 250 trading days for 2012, a couple short of the typical year due to the 2 day trading suspension following Hurricane Sandy.
  • The DJIA experienced only one daily change of more than 300 points in 2012 (draining off 312 points on November 7th following the Presidential election). By comparison, there was a staggering 41 days in 2008 when the DJIA closed up or down more than 300 points.
  • There were 123 days when the session ended up and 127 when it ended down. The average up day added 79.10 points and the average down day lost 61.43 points.
  • There were 9 days in 2012 when all 30 stocks ended the session higher and 4 days when all 30 ended lower.
  • The DJIA had 7 streaks when it moved either up or down for 5 or more days in a row. Only two of the seven streaks saw the DJIA moving up. The longest streak ended on March 15 when it was up for the 7th straight day, a rally that saw the DJIA gain 493 points or 3.87% driven by positive views on jobs and manufacturing.

 

 

 

 

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