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The Dow Jones industrial average rose above 12,000 Wednesday for the first time since 2008, giving bullish investors a pat on the back for sticking with stocks despite simmering concerns about the European debt crisis, monetary policy tightening in China and stubbornly high U.S. unemployment.
But before you conclude the Dow is anything special, consider its performance since Lehman Bros. went bust in September, 2008, relative to two other major North American benchmarks.
The Dow, of course, is a narrow index of 30 blue-chip stocks, most of which pay dividends. But since September, 2008, it has moved in lockstep with the broader S&P 500 and even Canada's S&P/TSX composite index.
This is surprising because at first glance, the three indexes look very different. The S&P 500, for instance, has a bigger weighting in U.S. financial stocks than the Dow. These stocks were toxic during the financial crisis and are still down more than 50 per cent from their highs, despite an impressive rebound over the past two years.
In contrast, the S&P/TSX composite index is home to Canada's far more stable financial sector, which kept rolling out dividends during the financial crisis and never experienced a bankruptcy.
Plus, the Canadian index is one of the world's go-to destinations for exposure to commodity stocks, including oil producers, gold miners and fertilizer companies. These stocks, which have been on a tear with the economic recovery, represent about 50 per cent of the index, in terms of their combined weighting.
By comparison, commodity stocks within the Dow have a combined weighting of just 15 per cent.
These underlying differences haven't translated into performance gaps, though. The Dow might be hogging the spotlight right now after flirting with 12,000 on Wednesday and closing just beneath the milestone. But other indexes are sharing the stage.
David Berman