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Posted on March 6, 2013
On Tuesday AIM released its February Business Confidence Index, which slipped to the negative side of its 100-point scale (49.0) – the same day that the Dow Jones Industrial Average reached an all-time high. Does this make sense? Actually, it does.
The Dow’s new peak was achieved on mixed results among the component stocks. Only 18 of the 30 current components are up since October 9, 2007, the date of the previous high, while twelve were down. The balance would be worse ” and no record would have been set ” had not Bank of America, Chevron, Cisco and UnitedHealth replaced AIG, Altria, General Motors and Honeywell on the Index, and Travelers not succeeded its former owner Citigroup.
Retail components of the Dow led the runup (the DJIA has been steadily “de-industrialized” in recent decades) as the sector’s long-foreseen shake-out strengthened some of its biggest companies. Consumer-oriented manufacturers (and Disney) also did well. Results were mixed at best for financial, technology and pharmaceuticals. Capital goods producers lagged, although Caterpillar gained on strong exports to emerging economies.
The Dow 30 is, of course, pretty much the definition of “small sample size,” but consider how those (apparent) patterns apply to respondents to AIM’s survey and to the Massachusetts economy.
So, quite apart from purely financial issues, there are good explanations for the divergence between DJAI and BCI results. We don’t have to choose between them ” though if we did, I might go with the moderate skepticism of Massachusetts employers.