The “Curse of the Dow” is not just some lame Wall Street superstition. The Curse of the Dow is real, statistically verifiable and it even impacts market high flyers like Apple.
The Curse of the Dow is the phrase used to describe the (actually perfectly logical) phenomenon that firms joining the Dow Jones Industrial Index move up notably in the months before their addition to the Dow 30, but underperform in the following months.
Proof of the Curse of the Dow
Of the 16 firms joining the Dow since 1999, 15 have had their share price increase an average of 1% in the six months after joining the index, according to data from Birinyi Associates. However, these 16 firms had, on average, seen their share price move up by 11% in the six months before their inclusion.
Moreover, the data show that the relative underperformance of share price six months after inclusion in the DJIA only gets worse another six months out. The 16 companies added to the Dow since 1999 were down by an average 7% a year after joining the index. Keep in mind that that compares to an increase of 25%, on average, in the year before their inclusion.
The ‘Curse of the Dow’ is alive and well,” said Nick Colas, chief market strategist at Convergex, noted in reference to Apple’s recent underwhelming performance.
Of note, Apple replaced AT&T in the Dow 30 back in March of this year. Somewhat ironically (a reverse Curse of the Dow?), shares of AT&T are up a solid 4.3% since being booted from the DJIA. AT&T stock was down by 0.9% in the three months before they exited the index.
Apple’s recent performance
Apple is still a couple of months away from the six-month mark, but as of three months after its Dow inclusion, the firm’s shares are off 0.5% after zooming up 13% in the three months prior to its inclusion. That said, Apple’s performance over the last three months isn’t much different than that of of the general markets. The DJIA has moved up close to 0.2% since mid-March when Apple joined the Dow, just a tenth of percent more than the iPhone maker.