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Why Boeing shares will weigh on the Dow after Ethiopia plane crash

Brian Sozzi
Editor-at-Large

Boeing — and Dow fans — could be in for a rough going this week.

Shares of the aerospace giant tanked 10% in pre-market trading on Monday as the deadly Ethiopian Airlines plane crash sparked safety concerns for the company’s popular 737 Max. It is the second deadly crash for Boeing’s top-selling 737 Max jet in five months.

Boeing said in a statement it’s sending a technical team to the site to investigate the cause of the crash.

Boeing’s importance to the Dow

As Boeing goes so often goes the Dow Jones Industrial Average.

“It is hard to imagine a company more levered to long-term global economic trends than Boeing,” contends DataTrek co-founder Nicholas Colas.

Boeing derives about 56% of its sales internationally. China accounts for 14% of Boeing’s sales, while Europe weighs in at 14% of the business. As the global economy goes, so does Boeing.

Meanwhile, Boeing’s U.S. government business accounts for 31% of its sales. Spending by the government on things such as Boeing jet fighters and other weaponry is a decent proxy on the health of the U.S. economy.

Boeing represents about 10.9% of the Dow. Colas argues the Dow is “the most important measure of U.S. equity prices when it comes to how Main Street judges Wall Street performance.”

The logo for Boeing appears above a trading post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)

Colas points out the following data:

  • Every day five times the number of Americans Google search “Dow Jones” as compared to “S&P.”

  • The weightings in the Dow for Apple (4.5%) and Microsoft (2.8%) are dwarfed by Boeing’s. Amazon and Alphabet aren’t in the Dow, which is a price weighted index.

So, it’s logical Boeing is the most important seeing as it’s the biggest Dow component.

Colas adds that Boeing’s 22% year-over-year advance (prior to the latest sell-off) has only contributed to its influence among investors. It’s still the best-performing Dow stock this year by a wide margin. As a result of Boeing’s 10.9% weighting, it has contributed way more to the Dow’s solid start to the year than other components.

“Remember: the Dow is the primary transmission mechanism between financial asset prices and the public’s perception of stocks and therefore the U.S. economy.”

The Dow under wraps

Boeing shares only recently touched all-time highs, deservedly so. Boeing saw its operating profit margins expand in all three of its business segments in the fourth quarter. For 2018, Boeing’s sales rose 8% to $101 billion and earnings per share increased a cool 30%.

Boeing jacked up its dividend by 20% in late December while also authorizing a new $20 billion stock buyback. The company also continues to win new defense contracts under the Republican administration.

Nevertheless, two plane crashes of a top-selling jet will likely keep Boeing shares away from returning to all-time highs for now. And as a result, the same could be said for the Dow.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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