Want to know how seriously the stock market is concerned about a trade war between the U.S. and China? Watch the Dow Jones industrial average.
This concentrated, price-weighted index of 30 stocks is dominated by companies that either sell into global markets or source materials outside the U.S. It is a a better gauge of the potential impact of the U.S.-China tariff dispute than the more diversified S&P 500.
(Related: The Stock Market Doesn’t Want a Trade War)
Year to date through Friday, the Dow is down 3.18% while the S&P 500 is off 2.59%. When markets plummeted Friday after President Donald Trump threatened U.S. tariffs on an additional $100 billion worth of Chinese imports, the Dow fell 2.34%; the S&P 500 dropped 2.19%.
“Market fears over multilateral trade wars have dinged the Dow much more than other market measures,” writes Nicholas Colas, co-founder of DataTrek Research, in a recent market analysis.
He notes that five of the Dow’s 30 companies have global supply chains or global sales footprints: 3M, Caterpillar, Home Depot, P&G and Walmart. Home Depot and Walmart buy source materials globally; 3M, Procter & Gamble sell products globally and Caterpillar does both.