The Dow Jones Industrial Average is at record highs and it’s mostly because of just one of its components. Caterpillar is doing a lot of heavy lifting when it comes to moving the Dow index, a huge change from last year when it was up just 1 measly percent against the Dow’s 26 percent gain.
Though it’s just 4 percent of the entire average, the equipment maker is up nearly 17 percent through May 9. To put it in perspective, Caterpillar accounts for more than half of the entire Dow’s gains. And, were it not for Caterpillar, Merck and Disney, the Dow would be down in 2014.
This is a good example of how difficult it can be at times to make heads or tails out of market headlines and sound bites alone. It also illustrates how challenging it can be to filter short-term market noise.
Just as Caterpillar has returned to favor after a dismal 2013, we have seen other sectors move from the bottom of the heap to the top. Most notable among these are Real Estate Investment Trusts, or REITs. This area has gained around 8% through the first part of May. Another asset class that was beaten down in 2013, commodities, have picked-up 5% so far this year.
Diversification, which was detrimental to performance last year, has helped smooth volatility and, at least so far this year, has been additive to returns.
Source: Yahoo Finance