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Critics argue that the Dow-Jones is inflated, exaggerated and inaccurate—and they are partly right. It is the sum of only 30 selected stocks, ranging alphabetically from Allied Chemical to Woolworth; that sum is then divided by a divisor (currently 2.245) to adjust for past stock splits and dividends. Not only is the Dow a severely limited gauge of the 1,625 stocks on the Big Board, but it gives undue power to higher-priced stocks. Example: Du Pont is only one-sixth the size of General Motors, but carries more than twice as much weight in the Dow because it sells for about $218, as compared to G.M.'s $97.
Flying High. While the Dow has been in the dumps, the little-noticed Standard & Poor's index of low-priced issues (below $20) last week reached an all-time high of 130.71, up 10% since the last week of 1965. Even high-priced stocks have continued to rise in a number of high-flying groups, notably electronics and airlines. Since Feb. 9, when the Dow-Jones decline be gan, Collins Radio has moved from 48 to 71, Pan Am from 57 to 60, Gulf & Western from 97 to 106 and Texas Instruments from 200 to 210. On the bearish side, there have been sharp drops in several groups, including aircraft manufacturing, life insurance, oil and utilities.
Where will the market go next? Brokers are generally optimistic but have a standard hedge: all bets are off if the Viet Nam war forces the Government to openly control prices and credit and thereby curb profits. Except for that, most insiders believe that the market has just about touched bottom, and many of them are talking about cracking the elusive 1,000 mark on the Dow before long. One prime reason is that the blue chips are conservatively priced, selling at little more than 16 times the estimated per-share earnings for 1966—lower even than the 17-to-l ratio at the bottom of the 1962 market break. U.S. investors for 20 years have ridden one long bull market, with only slight or brief interruptions, and nobody who believes in the, long-term growth of the nation's economy is ready to say that the party is over.