By Laura Mandaro
The sudden contraction in U.S. consumer spending and global
liquidity that brought some of America's most revered companies to
their knees has made the Dow Jones Industrial Average - meant to
represent the country's leading companies - more an index of
laggards.
Year-to-date, the index of 30 large and established companies
(DJI) has fallen 5%. The S&P 500 (SPX), made up of a wider
variety of large-capitalization and some younger companies, is
about flat.
The broader Wilshire 5000 has gained 1.6%. And the more growth-
and tech-oriented Nasdaq Composite (RIXF) index has rallied
14%.
Steep slides in General Motors Corp. (US-GM) and Citigroup, Inc.
(C) shares weighed on the Dow's performance earlier this year.
They've since left the index.
But even with new entrants Travelers Cos. (TRV) and Cisco
Systems (CSCO), the Dow may fail to catch up as a recovering
economy favors smaller companies that that don't sell much of their
wares overseas.
"We think the recession is ending right here and the resumption
of growth will disproportionally benefit smaller capitalization
companies," said Phil Orlando, chief equity strategist at Federated
Investors, which manages about $409 billion.
Plus, he anticipates that U.S. dollar has ended its slide and
will strengthen versus the euro. A stronger dollar puts more
domestic-oriented companies at the advantage to larger
multinationals - the type of companies like McDonald's Corp. (MCD)
and General Electric Co. (GE) that make up the Dow.
Unless they're struggling against huge job losses, plunging
industrial output and a historic credit squeeze, multinationals
tend to benefit when the dollar slips.
"If we're right that the dollar will strengthen over the next
year, that's not great for large-capitalization companies," Orlando
said.
On Thursday, all U.S. benchmarks fell after the U.S. Labor
Department's June jobs report showed a steeper drop in jobs than
economists were expecting.
The Dow industrials fell 166 points, or 2%, to 8,338. The
S&P 500 sank 19 points, or 2.1%, to 904 points. The Nasdaq
Composite lost 43 points, or 2.3%, to 1,803.