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Boeing’s share price has a strangely large impact on the Dow Jones Industrial Average

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Natasha Frost
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Norwegian Air Boeing 737 MAX 8
Norwegian Air Boeing 737 MAX 8

The world’s largest manufacturer of jet planes has a jumbo-sized effect on the Dow Jones Industrial Average.

Boeing’s share price tumbled nearly 14% today (Match 11) following an Ethiopian Airlines crash yesterday in which all 157 people on board were killed. The shares recovered somewhat, and closed at $400.01, down 5.3%.

Though this particular tumble hasn’t overly dampened the Dow, Boeing has the capacity to make the index swing wildly one way or the other. That’s because although there are thousands of publicly traded companies in the United States, the Dow Jones Industrial Average is made up of just 30—chosen with no clear methodology, beyond that all are decades old, large, and established.

To calculate the “industrial average,” Dow Jones takes the share price of these companies, adds them up, and then divides them by a number called the Dow Divisor. This number—which changes over time—is designed to be easily adjusted to factor any major structural changes to the 30 listed companies. At the moment, it’s 0.14748071991788.

The largest companies in the index don’t necessarily have the greatest influence on it. That’s because it calculates weighting by share price, rather than market capitalization. Here, at least, Boeing is a powerhouse. Its share price is many multiples of almost every other company in the index, with share volume outstripped by only Apple and Microsoft. Because of that, it has an outsized influence on the Dow, with a percentage weighting of over 11%.

No.

Stock

% Weight

1

Boeing

11.26

2

UnitedHealth Group

6.32

3

3M

5.35

4

Goldman Sachs

5.20

5

Home Depot

4.83

6

McDonalds

4.78

7

Apple

4.61

8

Visa A

3.93

9

Johnson & Johnson

3.68

10

IBM

3.60

This makes the Dow somewhat vulnerable to its ebbs and flows: when Boeing goes south, it drags the Dow with it. In the same way, when Boeing’s share price soars, the Dow looks particularly healthy. It’s another reason the Dow Jones isn’t necessarily a great indicator of the US economy—though the fact that it’s treated as such means its changes can have outsize consequences on how analysts and shareholders treat the market.

 

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