Dow flying high despite other poor economic indicators

The New York Stock Exchange is seen on Wall Street on May 1, 2012 in New York City.

Jeremy Hobson: The Dow closed near its highest level in about four years yesterday and that’s where we’re going to start with Josh Brown of Fusion Analytics. He’s with us live from New York as he is every Wednesday. Good morning Josh.

Josh Brown: Good morning, Jeremy, how are you?

Hobson: I’m doing well. Aside from what’s going on in the Dow today, we’re at a very high Dow and I’m wondering how that can be when there are so many other economic indicators recently that don’t look so great?

Brown: I think don’t read too much into it. Number one, the Dow is a price rated index unlike the S&P which is cap rated so there are a handful of high prices like IBM that are having a big influence. The other thing to keep in mind is that the Dow is just 30 stocks. Look at the S&P, look at the NASDAQ, they are not near those highs and it’s a totally different story over the last month. Tech stocks are down three percent in April for example.

Hobson: So what does that tell you when the Dow is up while the NASDAQ is down?

Brown: And by the way, the NASDAQ ex-Apple, because Apple has basically become the NASDAQ. I think the important takeaway here, the types of stocks that are in the Dow tend to be a little bit more defensive. It’s where people go, professional money managers, when they want to stay invested but they want to ratchet down the risk so you see them selling things are maybe a little more aggressive and you see them going into Dow type names that pay higher dividends and are a little bit more defensive.

Hobson: Defensive about Europe, Josh?

Brown: Yeah, I think that’s definitely a huge concern out there. The U.S., the data has been a little bit soft in the last couple of weeks but now we have this fireball in Spain which is twice the size of Greece in terms of its impact on the economy. So these things are all playing a role in people wanting to take a little bit of risk off for the summer.

Hobson: Josh Brown of Fusion Analytics. Thank so much.

Brown: Thank you.

About the author

Josh Brown is a New York City-based financial adviser at Fusion Analytics.

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