Dow 2012: The Studs and Duds

by Jim Woods | December 26, 2012 7:30 am

[1]The Dow Jones Industrial Average is the granddaddy of all market indices, and it’s by far the most-watched measure of the U.S. equity market’s health. With only 30 components, the Dow is far from the broadest measure of equities. But its status as the go-to way for both Wall Street and Main St. to check the market’s pulse cannot be questioned.

This year, the Dow has logged an impressive total return of 8.47% through the closing bell on Wednesday, Dec. 19. I say impressive, because a number of strong headwinds could have kept the Industrials down in the dumps for much of the year.

The year-to-date chart here of the Dow shows the big plunge in stocks in May, a sell-off that was chiefly the result of the European debt crisis. To the surprise of many, stocks managed to rally very sharply after the European Union and European Central bank took steps to resolve the debt crisis.


In October, the markets began to confront the uncertainty of the U.S. presidential election, and after that was settled, the fear factor turned to the still-unresolved issue of the fiscal cliff.

Now, while the Dow managed to have a strong year, the performance of the index as a whole fails to tell the story of what really happened. This year, several Dow “studs” surprised a lot of market observers (myself included). Also, though, a number of surprise “duds” suffered a very bad year.

The table below shows the year-to-date total return for each Dow component through Dec. 19, showing some very big winners and some disappointing losers.

BAC Bank of America 105.31%
HD Home Depot 53.14
DIS Disney 35.97
JPM JPMorgan Chase 35.87
TRV Travelers 29.18
AXP American Express 24.30
GE General Electric 24.17
PFE Pfizer 23.10
MRK Merck & Co. 22.24
T AT&T 19.71
WMT Wall-Mart 19.15
MMM 3M 17.92
CSCO Cisco 15.75
UTX United Technologies 15.49
VZ Verizon 14.75
JNJ Johnson & Johnson 12.17
UNH UnitedHealth 10.01
KO Coca-Cola 9.54
MSFT Microsoft 9.21
PG Procter & Gamble 8.40
XOM Exxon Mobil 8.36
IBM IBM 8.22
CVX Chevron 6.99
BA Boeing 5.46
AA Alcoa 4.38
CAT Caterpillar 2.31
DD Du Pont 1.54
MCD McDonald’s -6.89
INTC Intel -10.58
HPQ Hewlett-Packard -42

The best Dow component showing this year was Bank of America (NYSE:BAC[3]), which has more than doubled in value since the beginning of 2012. Growing confidence in financial stocks, along with improved housing metrics and growth in BofA’s mortgage business, helped investors bid up a stock that was beaten down hard in 2011. Of course, a big restructuring that included a whole lot of layoffs also helped BAC shares look good to investors.

Improved housing metrics also helped fuel the value of Home Depot (NYSE:HD[4]), which jumped more than 53% in 2012. We also saw a big gain in entertainment giant Walt Disney (NYSE:DIS[5]). News that it was acquiring Lucasfilms, purveyors of the Star Wars franchise, actually prompted a bit of selling the shares in October, and that kept DIS from enjoying an even better year.

As for the duds in 2012, there really weren’t many, but the three Dow stocks that were in the red through Dec. 19 were somewhat of a surprise. Perennial stalwart McDonald’s (NYSE:MCD[6]) saw a rare bout of downbeat earnings and slower global same-store sales in 2012. That caused investors to dump the fast-food giant, giving shareholders indigestion to the tune of a 6.89% loss in 2012.

Perhaps less of a surprise was the sullen performance of tech components Intel (NASDAQ:INTC[7]) and Hewlett-Packard (NYSE:HPQ[8]). Intel shares dropped 10.58% in 2012 as slower PC sales hit the chip giant hard. Even harder hit was HPQ, which was by far the Dow’s worst-performing stock, suffering a 2012 plunge of 42%.

HP watchers cite poor management and demand destruction in the personal-computer market for the decline in the shares, and even HP CEO Meg Whitman has admitted it could take years to completely turn around the company. I suspect that if things continue on the current trajectory for HPQ, it could soon find itself replaced as a Dow component.

At the time of this writing, Jim Woods was long KO, XOM and MCD.

  1. [Image]:
  2. [Image]:
  3. BAC:
  4. HD:
  5. DIS:
  6. MCD:
  7. INTC:
  8. HPQ:

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