NFLX - Netflix, Inc.
| Previous close | 413.44 |
| Open | 417.46 |
| Bid | 419.00 x 800 |
| Ask | 420.03 x 1100 |
| Day's range | 411.85 - 420.24 |
| 52-week range | 252.28 - 458.97 |
| Volume | 5,270,484 |
| Avg. volume | 8,923,626 |
| Market cap | 184.599B |
| Beta (5Y monthly) | 0.97 |
| PE ratio (TTM) | 84.95 |
| EPS (TTM) | 4.94 |
| Earnings date | 15 Jul 2020 - 20 Jul 2020 |
| Forward dividend & yield | N/A (N/A) |
| Ex-dividend date | N/A |
| 1y target est | 449.21 |
- Yahoo Finance
Data show why HBO Max's slow start may not tell the whole story
HBO Max made its official entrance into the streaming wars on Wednesday — and its day-one performance highlights how consumers are embracing the new platform.
- Motley Fool
Here's Why The Best Is Yet to Come for Roku
You might think that the streaming platform company's fortunes will sour once stay-at-home mandates ease. Think again.
- Financial Times
How TV has fed my love for books
It was the only part of a lockdown where we were lucky enough to be safe in a quiet, green neighbourhood that was truly disorienting — until an unlikely saviour popped up via online streaming television. Netflix, Hulu, HBO, Amazon Prime and other streaming channels have leaned heavily on book adaptations, but most of these are familiar — either old classics such as LM Montgomery’s Anne of Green Gables or Philip Pullman’s His Dark Materials, or newer bestsellers such as Sally Rooney’s Normal People. This time, straying into the wide and gloriously tempting world of adaptations in languages beyond English, TV serials led me to genres I might never have explored on my own.
- Bloomberg
What’s Keeping Stocks Afloat? The ‘Microsoft Market’
(Bloomberg Opinion) -- Stocks were supposed to be mired in a bear market after they plunged in March as the coronavirus pandemic shuttered business and sent U.S. unemployment to its highest rate since the Great Depression.Even a 62% recovery by the S&P 500 Index by the middle of May failed to comfort experts like billionaire money managers Stan Druckenmiller and David Tepper , who characterized stocks as the worst investments of their careers. They weren't alone; amid an estimated 47% collapse in gross domestic product, fewer than a quarter of respondents to an Evercore ISI survey said they expected the next 10% move in the market to be higher.So far, though, stocks have held their own as economic indicators sagged, regaining 37% of their value from the low point in mid-March. “The stock market looks increasingly divorced from economic reality,” a New York Times article on the phenomenon proclaimed.Or maybe not — not if you think of it as the Microsoft market. No company has defied the pessimism more than Microsoft Corp., and for a lot of sensible reasons. The Seattle-based maker of global business and consumer software led all publicly traded companies most of the year with a $1.4 trillion market valuation, exceeded only by Saudi Arabian Oil Co. which isn't yet freely traded.Unlike the largest fossil fuel company, which lost 13% since its December $1.9 trillion initial public offering, Microsoft is within 5% of its Feb. 11 record high and appreciated $947 billion since 2015, more than any of the 10 largest companies, including Apple Inc., Alphabet Inc. and Amazon.com Inc. The gap between Microsoft and Aramco narrowed to $229 billion from $840 billion, a trend likely to continue amid weak global growth in the months ahead.That's because Microsoft, unlike Aramco, is a mainstay of the global economy, developing and supplying 75% of the operating systems used by computers and servers worldwide, according to the market-analysis company IDC.Microsoft's vast infrastructure and productivity applications enable companies, governments and individuals to navigate increasing social and workforce disruption caused by the pandemic and other disasters stoked by global warming and climate change.As one of the anchors of the Nasdaq 100 Index (more than 80% are technology firms) Microsoft signifies the growing dependence of the economy on these companies, which this year outperformed the Dow Jones Industrial Average by the most since 2000 (Nasdaq 100 gained 8% as the DJIA lost 10%), according to data compiled by Bloomberg.“Microsoft could emerge stronger than most of its rivals once the Covid-19 crisis subsides, in our view, as enterprises spend more to upgrade their infrastructure and applications, translating into above-consensus, double-digit sales growth from fiscal 2022-2021,” said Anurag Rana, a senior analyst with Bloomberg Intelligence in a May 15 report. “Its deep portfolio of cloud products, client relationships and security spending are differentiators.”Such confidence is prompted by the past five quarters, when Microsoft earnings for the first time exceeded forecasts by at least 10% after beating the average of analyst estimates in all but one of the 23 quarters since 2015, according to data compiled by Bloomberg. Unlike its five more glamorous peers — Facebook Inc., Apple, Amazon, Netflix and Google (Alphabet) — Microsoft has an uninterrupted growth rate with the least volatility, according to data compiled by Bloomberg.To be sure, the Faang companies and similar technology marvels retained much of their value during the Coronavirus pandemic. Netflix has gained 28% since the end of 2019; Amazon is up 30%, Apple 9%, Facebook 10%. Tesla Inc., the maker of electric, battery-powered vehicles, rallied 93% since the end of 2019 and is worth just $59 billion less than No. 1 Toyota Motor Corp.Tesla anticipated the remotely engaged economy by selling its vehicles online and improving the customer experience with periodic, automatic software upgrades. The traditional auto companies haven't fared well. Bayerische Motoren Werke AG, is down 24% since the end of 2019 and General Motors Co., the largest U.S. auto maker, declined 28% and is worth only 26% of Tesla's current market capitalization of $149 billion, according to data compiled by Bloomberg.That's why the Dow, once the benchmark of corporate America, is a shadow of its former self as industrial companies represent just 9% of the average, down from 16% in 2000, according to data compiled by Bloomberg.“Microsoft already had a great relationship with Fortune 2000 tech departments because of its dominance in Windows and Office software products,” said Bloomberg's Rana in a recent interview. “As these legacy companies look to invest more digitally transforming their business post Covid-19, Microsoft should get its fair share of work” — lifting the stock market as it helps transform the economy.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Matthew Winkler, Editor-in-Chief Emeritus of Bloomberg News, writes about markets.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- TechCrunch
HBO Max was downloaded by 87K new users yesterday (Sensor Tower)
How did yesterday's launch of HBO Max go? Sensor Tower estimated that HBO Now and Max have been downloaded by 33 million people since launching in April 2015, compared to 260 million for Netflix, 120 million for Hulu (both Netflix and Hulu were measured starting in January 2014) and 50 million for Disney+.
- Yahoo Finance
How to possibly make easy money from Trump's battle with Twitter and Facebook
Try this trade on for size amidst the brewing battle between President Trump and social media companies.
- Motley Fool
3 Streaming Video Stocks That Have a Killer Advantage
Everybody's streaming, and every media company wants in on the fun. Let's look at three players whose secret weapons provide a leg up on the competition.
- TechCrunch
Netflix, Disney+ or HBO Max? The best streaming service for your watching habits
For the foreseeable future, at least, many of us have nowhere to go and nothing but time on our hands. With this week’s arrival of HBO Max, an overcrowded streaming market becomes even more competitive, particularly here in the United States. Gone are the days of Netflix’s streaming supremacy (at least from a content perspective).
- Motley Fool
How Retail Bankruptcies Affect Other Retailers
In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Emily Flippen and Ron Gross about the latest news from Wall Street. They talk about the work-from-home culture and the changes it brings.
Reuters VideosAT&T launches pricier HBO Max to take on Netflix
HBO’s new streaming service, “HBO Max,” launched on Wednesday – joining the already-crowded streaming industry with the likes of Netflix, Disney, and Amazon. It has 10,000 hours of content and six original titles including this one, a romantic comedy starring Anna Kendrick. For HBO, which is owned by AT&T’s WarnerMedia division, the timing of the launch is critical. Streaming services have a captive audience right now, stuck at home without access to a theater, live music or televised sporting events. That situation helped Netflix add nearly 16 million new paying customers in the first three months of the year, more than double what it expected to attract. But with film and TV productions halted across the globe, HBO has postponed dozens of releases - most notably a “Friends” reunion special that it had originally planned for its launch. And if production doesn't resume by this fall, HBO Max could start to see a shortage of original content as early as January, according to a source familiar with the company. It has a $15 a month pricetag, a bit high compared to competitors, which may discourage some, as rising unemployment has cut disposable incomes. Still, WarnerMedia hopes to hit about 80 million subscribers by 2025.
- Motley Fool
AT&T TV Now Returns to the Roku Platform
AT&T's (NYSE: T) "skinny bundle" live TV streaming service has had a bit of a rough time in recent years. AT&T blamed lapsing promotional subscriptions for the sudden crash, an explanation that turned out to be both true and incomplete: AT&T did indeed lose a lot of promo subscriptions, but part of the problem was that such subscriptions were -- allegedly, at least -- created fraudulently in the first place and assigned to unknowing customers. Now, as first reported by Cord Cutters News, AT&T TV Now is back in action on Roku.
- Motley Fool
5 Stocks to Start Investing in 2020
If you want to learn about what it takes to succeed as a retailer, there's no better company to study than Costco Wholesale (NASDAQ: COST). Costco is also beloved by bargain shoppers for its low prices. The profits Costco makes from selling membership plans allow it to sell its wares only slightly above cost.
- Motley Fool
Why Content Is King for Netflix During a Pandemic
If you're like me, Netflix (NASDAQ: NFLX) is a go-to choice when there's time to kill. Netflix was the best performing stock of the 2010s, ending the 10-year period on December 31st, 2019 up 41-fold. Netflix has committed to spend $150 million supporting the industry.
- Bloomberg
Bank Stocks Are Either Cheap or Signal More Pain
(Bloomberg Opinion) -- Something strange happened in the U.S. stock market on Tuesday.No, it wasn’t that the S&P 500 crossed 3,000 for the first time in almost three months, generating a yelp of joy from the White House and groans from Wall Street veterans who remain perplexed at the seeming disconnect between financial markets and the American economy.Rather, the most unusual part of the latest rally is that bank shares clearly led the advance. As of last week, Bloomberg’s 18-company S&P 500 Banks Index was down more than 40% in 2020, trailing the broader stock market by an almost unprecedented degree since the coronavirus pandemic shut down the world’s largest economy. However, the index soared 9% on Tuesday, far and away a bigger gain than any of the other 23 industry groups. A simple ratio of this bank index to the broad S&P 500 shows the extent to which financials have been beaten down so far in 2020 relative to other segments of the stock market. The gauge fell on May 13 to a level seen only twice before in data going back three decades, both in March 2009. The banks swiftly rebounded in the following months as the U.S. recession officially drew to a close in June of that year.As investors weigh the drastic gains on Wall Street against the backdrop of widespread unemployment and shuttered small businesses on Main Street, the performance of bank stocks may prove to be a crucial barometer of whether markets can sustain their exuberance. Few analysts dispute that shares of financial companies are cheap on a relative basis — but sometimes prices are depressed for good reasons. Inexpensiveness alone isn’t a compelling enough reason to expect banks to bounce back as they did in 2009. Instead, perhaps more than any other industry, a lasting rally will come down to investors’ conviction in a sharp and sustained economic recovery.Investors have a few obvious reasons to be wary of U.S. banks. For one, long-term interest rates are near record lows while traders have started to wager on negative short-term rates, even as Federal Reserve officials repeatedly question the policy. All this points to lower net interest income, a crucial metric that reflects the spread between what a company earns on its loans and what it pays on its deposits. Meanwhile, large banks have already halted share buybacks, and minutes from April’s Federal Open Market Committee meeting revealed that policy makers are debating whether they should also restrict their ability to pay dividends to shareholders during the pandemic.Whether those downsides merit a $1 trillion wipeout, akin to the 2008 financial crisis, is not so clear cut. As Bloomberg News’s Lu Wang and Felice Maranz reported, at that time the financial industry’s earnings worsened for eight consecutive quarters, but analysts only expect profit declines to last half as long this time around. Banks are broadly considered to be well capitalized — certainly much more than they were 12 years ago when they had to be bailed out by the government. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon expressed confidence in mid-April, when the outlook was even more uncertain than today, that the biggest U.S. bank can handle “really adverse consequences.” He said on Tuesday that the U.S. could see a “fairly rapid recovery.”“The government has been pretty responsive, large companies have the wherewithal, hopefully we’re keeping the small ones alive,” he said at a virtual conference hosted by Deutsche Bank AG.It’s far too soon to declare an “all clear” on the economy, but it’s starting to look as if actions from the Fed and Congress at least helped the U.S. clear the low bar of avoiding the worst-case scenario. The numbers are still awful, especially when it comes to unemployment, but data released Tuesday showed an unexpected increase in new-home sales in April compared with those a month earlier. Broadly, Citigroup Inc.’s economic surprise index is off its lows, indicating that recent figures aren’t quite as bad as analysts expected.“The economic data have been so darn grim lately with job losses in the tens of millions that the green shoots of optimism from better consumer confidence and new home sales are welcome,” Chris Rupkey, chief financial economist at MUFG Union Bank NA, wrote on Tuesday. “We still can’t see a V-shaped recovery, but at least this is looking like the shortest recession in history which will be measured in months not years.”If that’s the case, investors will likely look back on the past few weeks as a time when bank stocks became far too cheap compared with other parts of the market. Yet Tuesday’s seemingly huge rally still leaves financial companies worth far less than before the pandemic, and it seems reasonable to expect they’ll remain that way for a while. After all, it’s anyone’s guess just how many loans will end up going bad and saddle banks with losses. There are far more moving parts to JPMorgan’s bottom line than that of, say, Netflix Inc., which fell 3% on Tuesday, the most in almost a month.It’s never a good idea to read too much into one optimistic trading day, especially coming out of a U.S. holiday weekend in which many Americans probably got a taste of “normal” pre-pandemic activities. But on its face, Tuesday looks as if it could be something of a turning point for bank shares. The follow-through will indicate if they were just too cheap to pass up, or if the economy truly is on the mend.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Motley Fool
Will Netflix Stock Hit $520?
Netflix (NASDAQ: NFLX) is on its way to new all-time highs. So says Jefferies analyst Alex Giaimo. Giaimo reiterated his buy rating and $520 target price for Netflix's stock on May 22. His new target implies potential gains of approximately 25% for investors, based on Netflix's current price of $417.
- Motley Fool
Could Sirius XM Be a Millionaire-Maker Stock?
Satellite radio veteran Sirius XM (NASDAQ: SIRI) has made millionaires before. Sirius XM saw its annual revenues rise by 86% over the last five years. Pandora added $1.6 billion to Sirius's sales last year.
- Motley Fool
California Held Back the Promised Reopening Guidelines for Movie Production This Week
Gov. Gavin Newsom was eager to get film studios back in action, but his office respected a more safety-focused attitude from industry insiders.
- Financial Times
Space Force — Steve Carell lands as a lunatic general in cosmic Netflix comedy
It’s a grim thought, but imagine for a moment what Donald Trump’s favourite four-star general might look like. Now imagine all that played for laughs, and if what you’ve come up with could only be encompassed by Steve Carell, congratulations, you’ve dreamt up Space Force. In the new Netflix series, the president has impulsively tweeted “Boots on the Moon!” and so a vast military Shangri-La costing billions of dollars is magicked into being in the Colorado Desert.
- Zacks
How FAANG Stocks Are Defying the Coronavirus Bloodbath
Facebook, Inc. (FB) Apple (AAPL), Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and Alphabet, Inc.'s (GOOGL) Google have outperformed during the coronavirus pandemic.
- Motley Fool
Netflix Can't Keep Mailing Out DVDs Forever
To DVD or not to DVD? This is a question that the streaming video service will need to answer sooner rather than later.
- Bloomberg
HBO Max’s Biggest Competitor: HBO
(Bloomberg Opinion) -- HBO Max launches in just two days, and it has the potential to be one of the best streaming-TV apps out there. The only problem is, consumers don’t seem to have a clue what’s on it. In a poll earlier this month conducted by Morning Consult and the Hollywood Reporter, some 2,000 U.S. adults were asked to choose from a list of TV shows and movie titles which ones they think will be available on HBO Max, a new Netflix-like service being introduced by AT&T Inc.’s WarnerMedia division. The results should worry company executives:As the chart shows, hardly any of the respondents knew that HBO Max would be the exclusive streaming destination for the hit sitcoms “Friends” and “The Big Bang Theory” — highly sought-after content rights that WarnerMedia reportedly spent more than $900 million to secure for the new service. It also wasn’t apparent to the survey takers that DC Comics films and “Sesame Street” would reside on HBO Max.HBO has stood as a force all its own for so long that most people just don’t realize it shares a parent company with Warner Bros. studios and other TV networks, such as Cartoon Network, TBS and Turner Classic Movies. That’s too bad since the same poll showed that the inclusion of such content would make many consumers more likely to subscribe. The most telling response, though: Most of the people polled didn’t even think that “Game of Thrones” — the premier series of HBO’s entire 47-year history — would be accessible through HBO Max, even though it has “HBO” in the name. Consumers can be forgiven for the confusion. Americans’ experience so far with streaming-TV apps is that nothing is intuitive and everything is hard to find. For example, it’s not like ESPN+ is a digital replica of regular ESPN; it’s a different product entirely. And for years “Friends” has been available on Netflix, so young people may only know it as a Netflix show. Without being aware of HBO’s ownership and WarnerMedia’s recent dealmaking, there’s no obvious reason Central Perk would be on the same block as Sesame Street, around the corner from Westeros on the streaming continent of HBO Max. To make matters more confusing, streaming regular HBO (through the HBO Now app) and signing up for HBO Max costs exactly the same — $15 a month.Disney+, which has signed up more than 50 million users since its November launch, doesn’t share HBO Max’s branding conundrum. The only thing survey takers seemed to know for sure is that “The Mandalorian” isn’t part of HBO Max. And that’s probably because Walt Disney Co. has so successfully reestablished “Star Wars” as a Disney property, even though it has only owned the franchise since 2012. The same goes for Pixar and Marvel. It’s for that reason that the biggest hangup of Disney+ — being so narrowly focused on superheroes and kid-friendly programming — can also be a strength. The biggest challenge for other streaming services may be building loyalty when viewers aren’t quite sure what to expect. The move away from appointment viewing on cable TV means that while we’re loyal to particular series and trilogies, we don’t necessarily know (or care) what networks or studios they’re tied to. For WarnerMedia, there’s still certainly a powerful advantage in continuing to use the HBO name for its new product — right away it tells people to expect great content (and hopefully that quality isn’t sacrificed while trying to keep up with the Netflix production factory). At the same time, it makes it difficult and costly to educate consumers on what HBO Max even is. That’s especially true when some of its content is temporarily licensed from its very competitors, such as Disney’s “The Mighty Ducks” and “X-Men: Dark Phoenix,” thanks to distribution deals that predate the streaming wars. (Remember, “X-Men” is Marvel, not the DC Extended Universe.)HBO Max could give other apps a run for their money. But how do you easily explain that it’s just like regular HBO, but it has all this other stuff you’ll probably like as well, yet it doesn’t cost anything extra? Good luck fitting that into a compelling advertisement.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
TikTok's In-App Revenue Skyrockets During Lockdowns
(Bloomberg) -- ByteDance Ltd.’s millennial sensation TikTok and its Chinese twin app Douyin ranked top in the world among mobile apps for April revenue, according to Sensor Tower data that excludes games and advertising.Focusing narrowly on in-app purchases, TikTok and Douyin’s numbers for the month showed a tenfold increase to $78 million, propelling them ahead of more established names like YouTube, Tinder and Netflix, which rely more on existing subscriptions.The Chinese market, served by Douyin, contributed 86.6% of the app income, followed by the U.S. with 8.2%. In either version of the video-streaming app filled with dance videos and memes, users can purchase virtual currency to spend on supporting their favorite creators.Like many social media platforms, ByteDance is testing the waters of online commerce, even while it continues to rely on advertising as its main source of income. Emarketer expects that more than 75 million US social-network users aged 14 and older will make at least one purchase from a social channel in 2020, up 17.3% from 2019.In 2020’s first quarter, TikTok and Douyin generated 315 million downloads globally, up from 187 million a year earlier, said Sensor Tower, noting the positive influence of Covid-19 on the video-sharing apps’ popularity.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Motley Fool
2 Stocks You Can Buy and Hold Forever
Netflix and Microsoft have demonstrated the ability to meet challenges while delivering explosive returns for investors.
- Bloomberg
The Dow Is Getting Crushed in the Recovery Trade
(Bloomberg) -- This week marks a milestone for the Dow Jones Industrial Average: its 124th birthday. Not that anyone watching markets needs a reminder it’s getting old.Wrinkles show in the gaping divide between the venerable gauge and its younger brethren. Like many grandparents, it’s struggling to keep up with tech. Plunges in Boeing Co. -- its biggest member at the start of February -- were very costly, and some wonder if the benchmark represents the 21st century economy at all, especially in the coronavirus age.“The Dow has been on its way out for years,” said John Ham, associate adviser at New England Investment and Retirement Group. “Obviously it’s going to stick around just because so many people are familiar with it. But as far as relevancy goes, it’s your grandfather’s index.”Rarely have differences among indexes been more stark than they are now, in a market where the outbreak has made heroes of New Economy firms. Deprived of their benefits, the Dow remains down 14% in 2020 and was off 35% at its worst point. Meanwhile, the Nasdaq 100 has gained more than 7% this year, and the S&P 500 is 9% away from a positive return.Of course, the Dow has been consigned to history before, and survived. While it might be showing its age now, brief divergences among broad indexes are extremely common, and over long enough intervals they tend to even out.“Yes it is old,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “If you constructed something today, you would probably do it differently. But it’s worked for 124 years. Even currently. And it is a much smaller portfolio yet it does track over time to the broader S&P 500.”Judging an index by whether it rises more than another misconstrues the purpose of stock benchmarks, which is to measure the progress of a market. The S&P 500’s edge over the Dow in 2020 doesn’t make it a better or more useful tool. It does, however, shine a light on what in the economy is calling the shots during the lockdown -- online and automated companies like Amazon.com Inc. and Netflix Inc.Divergences among the gauges also matter to the masses of investors who invest in funds that track them. Roughly $11.2 trillion is indexed or benchmarked to the S&P 500, according to S&P Dow Jones Indices, and $4.6 trillion in passively managed assets are tied to it. About $31.5 billion is benchmarked to the Dow, with $28.2 billion of passively managed funds linked.Thanks to tech’s dominance, those divisions are getting especially pronounced. Less than halfway through the year, the Nasdaq has already outperformed the Dow by a full percentage point on 17 different days. That’s more than in any full year since 2009, data compiled by Bloomberg show.A lot of the discrepancy boils down to which companies don’t make the Dow’s cut. Take Amazon.com, for example, whose 35% gain this year has accounted for almost half of the Nasdaq’s advance and 10% of the S&P 500’s. Because of the stock’s $2,500 price tag, the Dow’s old-fashioned price-weighting system makes it impossible to let Amazon in.Other high-fliers that have proved themselves in a stay-at-home world also don’t appear in the Dow. Nvidia Corp., Netflix Inc. and PayPal Holdings Inc. -- all winners in the coronavirus age -- are each up at least 30% this year. The venerable Dow has gotten none of that boost.“If all you’re following is the Dow, you’re missing some big components,” said Ryan Detrick, senior market strategist for LPL Financial. “I hate to say it’s old, but there’s no question that it’s behind the times if you look at the way it’s broken down.”The Dow Jones Industrial Average, created on May 26, 1896, is different from other indexes. It’s weighted by share price rather than market cap, which is more commonly used today. Such methodology essentially rules out inclusion of several of the largest companies in the world, among them Google parent Alphabet Inc., whose shares trade above $1,000 and would likely take up too much of the index.A committee chooses members, not an objective, rules-based process. According to Dow Jones Averages methodology papers found on its website, the Dow seeks to maintain “adequate sector representation” and favors a company that “has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.”As a result, a company like jet-maker Boeing Co., down 60% this year, is more influential on the Dow’s performance than even the fourth largest American company, Alphabet, is on the S&P 500’s returns. Industrial firms, as the name of the index suggests, make up a notable 13% of the Dow -- 5 percentage points more than the sector’s weight in the S&P 500 and 11 percentage points more than the Nasdaq.Such focus has hurt in a pandemic-arranged stock market, where closed factories and shuttered economies have left industrials as one of the worst performing groups. The emphasis on the old-age economy is all the more striking in a world where companies that can operate with little face-to-face contact excel and a technological shift is accelerated.“That’s the unique nature of this particular recession, and it’s coming from the virus,” said Luke Tilley, chief economist at Wilmington Trust Corp. “If you take those contours of both big companies tend to have a buffer because of their access to capital markets and then you compound what is expected to be a dramatic change to the economy, you can get that bifurcated performance.”That leaves another way to view the index gap: the Dow is perhaps the stock gauge that is most representative of the broad economy precisely because it’s not dominated by these megacap firms. Surging shares of Amazon or Netflix certainly don’t reflect an America with over 20 million people unemployed and a collapse in spending.While the S&P 500 and Nasdaq may be methodologically optimized for a stay-at-home world, the Dow is certainly not.“Covid is actually amplifying all types of inequalities in the economy but the inequality in the market in terms of market concentration is also being amplified,” said Nela Richardson, an investment strategist at Edward Jones. “That rally is highly concentrated in a handful of firms. Most firms are still in bear territory.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
