Dow stock (NYSE: DOW) currently trades at $55 per share, about 15% lower than the level seen in March 2021, and it looks fully valued. DOW stock was trading at around $52 in early June 2022, just before the Fed started increasing rates, and is now 7% above that level, compared to 19% gains for the S&P 500 during this period. This underperformance of DOW stock can be attributed to a decline in sales in recent quarters due to lower demand and prices, given a challenging macro environment with higher inflation and rising interest rates. Although there has been a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan, investors still have concerns about a potential recession.
We note that DOW stock has had a Sharpe Ratio of 0.2 since early 2017, lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
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