Dow dragged down by single stock sell-offs

Blame Big Blue for the Dow’s big down day Wednesday.

The Dow Jones industrial average fell 119 points. But if it wasn’t for the drag from tech giant IBM, whose shares slid nearly 5% after a disappointing earnings report — accounting for 57 of the Dow’s total point loss — the blue-chip stock index’s loss would have been a much smaller 62 points.

How can one stock influence the Dow so much?

The answer has a lot to do with how its daily moves are calculated. The 30-stock Dow is a “price-weighted” index. That means its highest-priced stocks have the biggest influence on its daily point change. That’s why IBM, which has the fifth-highest share price in the Dow, can have such a disproportionate effect. (The S&P 500 is weighted by market value, which means its biggest companies influence its movements most.)

A $1 change in any Dow stock impacts the index by 6.8488 points, says Howard Silverblatt, senior index analyst at S&P Dow Jones indices. In IBM’s case, it's $8.36 — or 4.92% — dive Wednesday cost the Dow 57 points. Had the Dow’s lowest price stock, General Electric, a $30 stock, suffered a similar percentage loss, it would have trimmed 10 points off the Dow.

RELATED:

Index that tracks political conflict hits high

Goldman Sachs, the Dow’s priciest stock, was a major drag Tuesday, accounting for 77 points, or 68%, of the Dow’s 114-point decline.

The next Dow name that could cause an outsized impact is 3M, its second-priciest stock, which reports earnings Tuesday.