You Can’t Trust the Market (But You Can Trust Gold)

11.11.2016 • Politics and War

By Kris Sayce – Port Phillips Insider (Australia) –

A 200-plus point gain on the Dow Jones Industrial Average usually means it’s a big day for the market.

But when you look at the tiny 0.2% gain for the S&P 500, it’s easy to see that things aren’t quite as they seem.

We won’t go into a long treatise about the benefits or otherwise of a market cap-based stock index over a price-based stock index, except to say that the former is generally more representative of the true market action than the latter.

For instance, the two biggest movers in the Dow were JPMorgan Chase & Co [NYSE:JPM], which was up 4.64%, and Goldman Sachs Group Inc. [NYSE:GS], which was up 4.28%.

Combined, they contributed nearly 80 points of the Dow’s 218 point rise.

Yet their combined market capitalisation is around US$350 billion.

Meanwhile, General Electric Company [NYSE:GE], which gained a not-insignificant 2.63% for the day, contributed just five points to the Dow’s rise. It has a market cap of US$269 billion.

The reason is that Goldman Sachs’ share price is US$200.87; JP Morgan’s share price is US$76.65, while GE’s share price is just US$30.41.

When it comes to the Dow, the share price — not market capitalisation — matters.

The disparity is clearer when you compare those gains to some of the big losing stocks.

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