Laggardly Dow crosses 17,000 milestone

Thu Jul 3, 2014 12:09pm EDT

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By Rodrigo Campos

NEW YORK, July 3 (Reuters) - Wall Street on Thursday celebrated its love of zeros - the ones that come after commas, that is - as the Dow Jones Industrial Average topped the 17,000 mark for the first time.

The natural appeal of round numbers notwithstanding, the attention to the Dow as it crosses this latest milestone highlights not only the resilience of the current bull market but also the less-than-stellar relative performance of blue chip stocks this year. The Dow is up less than 3 percent so far this year, while broader measures of U.S. stocks such as the S&P 500 or Wilshire 5000 are up around 7 percent.

As an index, the Dow is overlooked by many Wall Street insiders that consider it out of date, since its price-weighted construction has kept companies like Apple and Google - recent engines of growth and the new all-American staples - on the sidelines.

About $13 billion is benchmarked globally to the Dow compared with $1.575 trillion to the S&P 500, according to S&P Dow Jones Indices data through 2012, the most up-to-date. But even as Wall Street looks elsewhere to measure performance, the Dow has retained a broad appeal for the occasional investor.

"When we make noise at round numbers it's for obvious reasons. It's a milepost, it gets attention not just from the folks that watch this on a minute-to-minute basis, but also from Main Street and that's why it's important," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

"But it is up less than half of the move the S&P 500 or the Nasdaq have made. It's a different kind of index so if you have two, three large-cap names that aren't performing well, like Visa or IBM that have large stock prices, that's going to drag it down."

Had it tracked the 7.2 percent year-to-date gain on the S&P 500, the blue-chip index would be trading above 17,700.

At the close on Wednesday only eight of the Dow's 30 components were outperforming the S&P 500 this year, while 11 were posting negative year-to-date readings.

Three of those in the red for the year are the index's newest additions, blue-chips since last September: Nike, Goldman Sachs and Visa.

Meanwhile, Bank of America, Alcoa and Hewlett-Packard, the three stocks that were booted from the index last year, are all up for the year with HP up 21 percent and Alcoa up 40 percent.

With the index at record highs, it certainly is not all bad news for the blue-chips. Caterpillar, the best performer so far this year, has gained 21 percent in 2014 and is on track for its best performance since 2010.

The record "is a powerful reinforcement to people on the sidelines that this is the strongest bull market they will see in their lifetime and many have missed it," said Craig Callahan, CEO of Icon Funds in Denver, Colorado.

Three healthcare companies (Merck, Johnson & Johnson , and UnitedHealth Group ) rank among those beating the S&P this year, helped by the higher prices in a sector that has more than $100 billion in completed and pending mergers and acquisitions in 2014 in the U.S. alone.

"Healthcare is the tip of the M&A sword of late," said Wunderlich's Hogan. "Large caps have been making extremely interesting acquisitions, so that's part of it."

Intel and Microsoft are also among the Dow's top performers in 2014, both breaking out to their highest in more than a decade, as so-called "old technology" catches up to the market rally.

Intel on Thursday hit $31.36, the highest since February 2004, and Microsoft is near last week's peak of $42.29, the highest since April 2000. But while Intel is up around 160 percent from the lows of March 2009 and Microsoft has risen about 180 percent, the S&P 500 has gained more than 190 percent in roughly the same period.

"It may give people pause to think what could go wrong. I wouldn't be anything more than vigilant," said John Manley, chief equity strategist at Wells Fargo Funds Management in New York.

"This market is driven by fundamentals; 17,000 is a psychological thing, probably not much more." (Reporting by Rodrigo Campos; Editing by Meredith Mazzilli)

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