Is the Dow Jones Ave. being Manipulated?

S.& P. 500 Sets a Record, or Then Again Maybe Not
By FLOYD NORRIS Published: December 30, 2003

The Standard & Poor's 500-stock index hit a record high yesterday. At least it did if all 500 stocks in the index are treated as equal.

That is not, however, the normal way to calculate the index. Measured in the conventional way, in which the 500 stocks are weighted by their market value, the index is 27.4 percent below the peak it reached on March 24, 2000.

But S.& P. also measures the index in an alternative way, in which each of the 500 stocks is treated the same. It thus captures the performance that would be expected by investors who put an equal amount of money into each of the 500 stocks and then frequently adjusted their portfolios to keep an equal amount in each stock.

Measured in that way, the index peaked not in March 2000 - when the stock market bubble is generally viewed as having burst - but on May 21, 2001, as the recession was beginning to take a toll on smaller companies that had not soared in the bubble but had held their own after the big companies and the big technology stocks began to falter.

From May 21, 2001, until the stock market hit bottom on Oct. 9, 2002, the S.& P. 500 fell about 40 percent, measured in either way. But since then, the recovery has generally been greater among smaller stocks, whether in or out of the S.& P. 500. The unweighted S.& P. 500 is now 68.6 percent above its low, while the S.& P. 500, measured in the conventional way, is up 42.8 percent.

Yesterday, the S.& P. 500 measured in the normal way rose 13.59 points, or 1.24 percent, to 1,109.48, leaving it far from the 2000 peak of 1,527.46. But the unweighted index gained 16.69 points, or 1.25 percent, to 1,351.02. That topped the previous record of 1,342.79.

How can the two measures be so different? .......