The Dow's changing role on Wall Street

NEW YORK (AP) - The Dow Jones industrial average's plunge below 10,000 this past week was perhaps an inevitable result of an increasingly fragmented stock market. The 104-year-old average is no longer a reliable indicator of how the overall market is faring.

The Dow ''is a good measure, but just not a measure of what's hot today,'' said Bob Dickey, managing director of technical analysis at Dain Rauscher Wessels in Minneapolis.

Since the beginning of this year, the blue chips in the Dow haven't lived up to that nickname, which is now better suited to the Internet and telecommunications stocks that have sent the Nasdaq composite index to a series of new closing highs. Venerable Dow stocks like Coca-Cola, DuPont and J.P. Morgan have been tumbling.

When the Dow lost 230.51 Friday to 9,862.12 - its first close below 10,000 since last April - it continued to diverge from the Nasdaq. The Dow is now off 14 percent since Jan. 1, while the Nasdaq, which keeps reaching new closing highs, is up nearly 13 percent. The Standard & Poor's 500 index, a broader measure of blue chips than the Dow, is down 9.25 percent.

Historically, the Dow's path reflected the market's performance. It generally tracked the record of the S&P 500 - which market professionals use as their benchmark - and the younger Nasdaq.

Last year was a turning point for the Dow. Although the 30 widely-held stocks enjoyed a respectable gain of 25.2 percent for the year, the Nasdaq soared 85.6 percent, invigorated by the public's appetite for technology stocks. What's happening in the stock market now is a continuation of that trend.

But while the Nasdaq may be the most exciting part of Wall Street, it also doesn't tell the whole story. As Dickey noted, at this point, ''there is no perfect index to look at'' that will reflect the overall market's performance.

Even the Wilshire Associates Equity Index, which reflects the market value of 7,000 New York Stock Exchange, American Stock Exchange and Nasdaq issues, doesn't give a complete picture of the market's strengths and weaknesses. It's down 5 percent since the beginning of the year.

The root of the Dow's current troubles is a shift in market perception about stocks and rising interest rates. Fast-growing, young high-tech firms, once seen as risky investments, are now considered better able than Dow companies to withstand the profit erosion that higher rates bring. So the Dow is tumbling and the Nasdaq is soaring.

This sentiment is true even for fledging Internet companies that don't make money now, but are expected to be highly profitable in the future.

As a result, traders who are looking for the top-performing stocks of today aren't paying much attention to the Dow, said Larry Rice, chief investment officer at Josephthal & Co. ''Nobody really cares what the Dow is doing,'' he said.

But Robert Stovall, a senior investment strategist for Prudential Securities noted that many individual investors do pay attention to the Dow, simply because it has such a good track record over a long time. And, he said, ''the individual is a bigger factor than he or she was five years ago,'' he said.

Dickey said the Dow is still relevant.

''It does still count. The deal is, it's not the style du jour. It's not a style of investing that's in vogue these days. But it will be again,'' Dickey said.

Last November, the Dow was reconfigured to include two of the Nasdaq's biggest stars, Microsoft and Intel, to better reflect the changing market. Their inclusion has done little to stop the Dow from sliding - although Microsoft is up about 11 percent this year, Intel is down about 3 percent. These now-well-established high-tech firms are now perceived as slower-growth blue chips.

For the week, the Dow lost 357.40. The Nasdaq gained 178.76 over the week to close at 4,590.50, having lost 27.15 on Friday. But the Nasdaq set two new closing highs on Wednesday and on Thursday, when it rose to 4,617.65.

The S&P 500 lost 12.73 over the week, closing at 1,333.36. On Friday, the index lost 20.07.

The Russell 2000 index, which reflects the performance of smaller-company stocks, rose 2.70 Friday to 556.74, but suffered a loss of 11.09 for the week.

The Wilshire Associates Equity Index ended the week at $13.14 trillion, up $18.36 billion from the previous week. A year ago the index was at $11.29 billion.

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