Why the Dow Is Crushing the Global Stock Market

The Dow Jones Industrials have put in extraordinarily strong performance so far this year, rising about 15% in 2013. What many U.S. investors don't realize, though, is how much the Dow has outperformed more global benchmarks of stock markets around the world.

Get to know the Global Dow
The Dow includes 30 of the most influential U.S. companies in the global economy. But if you want to get an even better measure of how the world stock market is performing, then turning to the Global Dow gives you a broader perspective. The Global Dow includes 150 stocks, each of which gets equal weight rather than price-based weighting. You'll find all 30 of the Dow Industrials in the Global Dow, along with some of the stocks that show up in the Dow's Transportation and Utility Averages as well.

With so many of the U.S. Dow averages' components, it's not surprising that U.S. stocks make up 42% of the overall Global Dow. But Japan represents about 10% of the average, and countries in Europe together compose more than 30%.


Within the Global Dow, you'll find plenty of international leaders, including Swiss food giant Nestle, British telecom Vodafone, and Brazilian mining company Vale. Financial stocks make up the best-represented sector of the Global Dow at about 17%, but the average is fairly well spread out across major sectors, with six different industry groups having 10% or greater representation in the average.

Why the Global Dow has fallen behind
So far this year, the Global Dow is up only about half as much as the Dow Industrials. Although U.S. investors tend to focus on the uncertainty with the Federal Reserve's policies as being most important to their domestic investments, global concerns elsewhere have had a much bigger negative impact on markets abroad. In particular, the plunge in the value of the yen has created a flight to the U.S. dollar, with dollar strength weighing on the returns of foreign stock markets for U.S. investors. Although Japan's stock market has launched higher because of the weak yen, emerging markets have suffered declines as their lightning-fast growth rates have slowed.

Moreover, Europe continues to be a cause for concern, as Turkey joined the list of countries in the region that have shown signs of destabilization. Turkey doesn't use the euro, but it nevertheless is strategically placed and represents an important bridge to the Middle East and Russia. Until investors become convinced that Europe can solve its systemic issues and move out of recession, it's likely to lag behind the U.S. and its more robust expansion.

Time to diversify?
For international investors, weak stock markets might well offer a great opportunity. As stocks in the U.S. appear increasingly overpriced, beaten-down international stocks are a better value. For instance, European energy stocks BP and Total haven't done as well as their U.S. counterparts, even though they both have similar global exposure to energy assets around the world. When you think about investing, don't ignore the Global Dow, despite the Dow Industrials' stronger performance recently.

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The article Why the Dow Is Crushing the Global Stock Market originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Total. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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