Except for IBM, the Dow had a big day

Big Blue has an outsized effect on the blue-chip index because of its price. If the stock were simply flat, the DJIA would be up 100 points.

By Charley Blaine 2 hours ago

Friday was a day when the peculiarities of the Dow Jones Industrial Average ($INDU +0.07%) were on full display.

The Dow finished with a small gain, but the Standard & Poor's 500 Index ($INX +0.88%) and the Nasdaq Composite Index ($COMPX +1.25%) were up and up nicely.

The reason for the Dow's decline was essentially one stock: IBM (IBM -8.28%), which fell $17.15 to $190 after a disappointing earnings report. The shares closed below $200 for the first time since Feb. 26.

IBM's loss subtracted about 132 points from the Dow by itself. If the stock had just ended the day flat, the blue-chip index might have been up 142 points, and everyone would be cheering for the dramatic rebound from the Dow's 81-point loss on Thursday.

Instead, the Dow finished up a whopping 10 points to points to 14,548. Twenty-four of the 30 Dow stocks were higher, led by Microsoft (MSFT +3.39%) and American Express (AXP +3.38%). (Microsoft is the publisher of Top Stocks, an MSN Money site.) The S&P 500 was up 14 points to 1,555. The Nasdaq Composite Index was up 40 points to 3,202.

Among the major indexes, the Dow is an outlier by a wide margin because it is a price-weighted index. That is, the higher the price, the larger the influence a stock has on the index. So, a $1 increase in a lower-priced stock can be more than offset by a $1 decrease in a much higher-priced stock.

At its current level, IBM's share price is 64% larger than the stock with the second-highest price -- Chevron (CVX +0.27%), which closed at $115.90 on Friday.

But -- and this is where things get weird -- IBM's market capitalization of $212 billion is 46% smaller than Exxon Mobil's (XOM +0.96%) $388 billion. IBM's 2012 sales of $104 billion were less than a quarter of Exxon's $453.1 billion.

The S&P 500 and the Nasdaq are market-cap weighted indexes. That is, the largest the market capitalization of a stock (the number of shares outstanding times the price), the more influence it has.

So, Exxon Mobil and Apple (AAPL -0.39%) have the most influence on the S&P 500; they represent around 6% of the market cap of the index. Apple has the heaviest impact on the Nasdaq because it represents around 7% of the Nasdaq's market cap.

Exxon was at $87.45, up 83 cents, with a market cap of about $390 billion. Apple, down $1.52 to $390.53, has a market cap of $367 billion.

In fact, there are 12 more companies worldwide with market caps larger than IBM's, including IBM and Apple plus Google (GOOG +4.43%), Chevron, Microsoft and Wal-Mart Stores (WMT +1.46%).

And Forbes magazine's ranking of its 2000 top companies puts IBM at 34. The rankings are based on sales, assets, profitability and market value.

IBM is widely admired for its ability to make money, but it is having problems actually growing, as Douglas McIntyre noted on Top Stocks. That worry may explain why the shares are down nearly 12% since hitting an intraday peak of $215.90 on March 15.

Revenue was down 5% to $23.4 billion in the first quarter. About two percentage points of the decline was due to currency fluctuations. The dollar was higher against the euro, pound and the Japanese yen. That reduced the value of revenue generated outside the U.S. Four of five business segments reported revenue declines in the quarter.

Earnings per share were up 3% to $2.70. In fact, earnings growth has far outstripped revenue growth in the last 10 years. Net income in 2012 was up 151% from 10 years earlier; revenue was up just 17%.

IBM wasn't the only high-priced stocks affecting the Dow on Friday. McDonald's (MCD -1.95%) shares were down $1.99 to $99.92 after first-quarter results disappointed. That contributed 15 points to the Dow's decline.

General Electric
(GE -4.06%), down 92 cents to $21.75, was responsible for more than 7 points of the decline. It, too, reported disappointing results.