MARKET PSYCHOLOGY:

Dow Index Giving a Distorted View of '05: The blue chips are badly lagging for a second year. Some pros see bargains in the sector. (Tom Petruno, December 15, 2005, LA Times)

[T]he market is doing a lot better than the Dow suggests.

To some investment pros, the Dow's continuing misery is an invitation to pick up what they believe are tremendous bargains in the blue-chip bin.

The 30-stock Dow index, which consists of some of the nation's biggest companies — General Electric Co., Wal-Mart Stores Inc. and Boeing Co. among them — rose 59.79 points, or 0.6%, to 10,883.51 on Wednesday. That lifted its year-to-date price gain to a measly 0.9%.

That is the worst performance of any major market gauge. By contrast, the Standard & Poor's 500 index, which gained 5.31 points, or 0.4%, to a 4 1/2 -year high of 1,272.74 on Wednesday, is up 5% this year.

Many indexes that track stocks of smaller companies are doing far better than the Dow or the S&P 500. An S&P barometer of small stocks, for example, has surged nearly 10% this year.

Even including dividend income, the Dow's year-to-date return is just 3.2%.

The Dow's woes in part reflect the disdain many investors have shown in this decade for big-name companies in general — a complete turnabout from how the stocks were perceived in the 1990s.

The reversal of fortune for blue chips "is one more example of how the market takes things to extremes," said Michael Holland, head of money manager Holland & Co. in New York.

A surge in the Dow though would be another boost for the President's poll numbers, which are a function of atmospherics, not reality these days..

Posted by Orrin Judd at December 15, 2005 8:40 AM