Santa Monica, Calif., March 12, 1999 (PRIMEZONE) - Wilshire Associates today warned investors to "avoid overreacting to the Dow" as it hit a new record, saying that it is not reflective of the market's real performance.
Although the broad-based Wilshire 5000 Index has also hit an all-time high, it is up year-to-date only about one-half that of the Dow Jones Industrial Average.
"Don't start popping the champagne yet," said Stephen Nesbitt, Senior Vice President of Wilshire Associates. "Take a closer look at reality and you'll find that the market is up only about half that of the Dow. This means that most investors are not reaping the benefits suggested by the Dow's performance.
"The Dow is flawed," Nesbitt continued. "It is biased towards the very large companies, measures only about 20 percent of the market, and fails to appropriately weight stocks in the index. As a result, investors get a distorted view of the market when using the Dow or, for that matter, even the S&P 500."
The Dow is up 7.80 percent year-to-date, while the Wilshire 5000 is up 4.24 percent. The Wilshire 5000, comprised of all US headquartered NYSE, AMEX, and NASDAQ stocks, ended the day at 11,798.01 with a market cap of $13 trillion. (Each Wilshire 5000 index point is worth more than $1.1 billion.).
As an example of the problems of a price-weighted index, Nesbitt pointed out that in the Dow, J.P. Morgan & Co. ranks as the third largest company. In the capitalization weighted Wilshire 5000 index, J.P. Morgan ranks number 116.
"In the Dow, companies with the largest stock prices carry the most weight, pulling up the entire index and creating illusions about the market."
The Dow also fails to account for 80 percent of the market, including many small and mid-sized technology companies.
NOTE: Figures are through 3/11/99 and may be updated for weekend stories.
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