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IBM results hit by stronger dollar (FOCKE STRANGMANN/AP)

IBM results hit by stronger dollar


Big Blue hits the blue chips Add to ...

The Dow Jones industrial average doesn’t usually take much heat for the strange way it weights stocks, but Friday is proving to a big exception because of International Business Machines Corp.

Big Blue tumbled 7 per cent in mid-morning trading after reporting quarterly results that missed expectations for the first time since 2005, according to Bloomberg. Sales fell 2.3 per cent, showing that the company is having a tough time growing.

IBM’s woes didn’t affect the S&P 500, which was up nearly 11 points or 0.7 per cent. But the Dow was down 9 points.

The reason for the difference? The Dow weights stocks based on share price, rather than market capitalization, and IBM shares traded above $200 (U.S.) before Friday’s meltdown – giving them a lot of heft within the 30-member index.

For most investors, this isn’t a big deal. Anyone who tracks an index through an index fund or an exchange-traded fund tends to use the broader S&P 500 as a benchmark. The popular SPDR S&P 500 ETF Trust has net assets of about $129-billion – or more than 10-times the size of the comparable SPDR Dow Jones Industrial Average ETF Trust.

No wonder so many observers moan and groan when the Dow hits a record high. As IBM has demonstrated on Friday, the index as a broad measure of the U.S. equity market is relatively meaningless.

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