The Dow makes its own way, and it’s the low road lately

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The Dow Jones industrial average is the most-watched stock gauge, but as veteran investors well know there are times when it’s a lousy indicator of what’s really going on in the market -- or in your own portfolio.

May was a reminder of that: The Dow was the only one of the major indexes to lose ground last month. It fell 1.4%. By contrast, the Standard & Poor’s 500 index rose 1.1%, the Nasdaq composite jumped 4.6% and the Russell 2,000 small-stock index gained 4.5%. The average U.S. stock mutual fund was up 3%, according to Lipper data.

The 30-stock Dow’s inability to keep up with the rest of the market in May also showed in its divergence from the broadest U.S. stock index, the Dow Jones Wilshire 5,000. Including dividend income, the Dow industrials had a total return of negative 1.1% last month, compared with a positive total return of 2.1% for the DJ Wilshire 5,000. That divergence in performance was the widest since October 2002, says Steven J. Foresti, head of the investment research group at Wilshire Consulting in Santa Monica, which developed the DJ Wilshire 5,000 index.

What weighed heavily on the Dow industrials last month were the index’s five financial stocks: insurer American International Group, American Express, and banking titans Bank of America, Citigroup and JPMorgan Chase. All five were down for the month.

Those five also are down the first three days of this month as well -- which has helped make the Dow’s loss so far in June (about 2%) worse than what many broader indexes are experiencing, once again. The S&P 500 is down 1.7% this month; Nasdaq is off 0.8%.

The Dow slipped 12.37 points, or 0.1%, to 12,390.48 today while other indexes were mixed, as the market struggled for direction despite another drop in oil prices, to about $122 a barrel.

Of course, the Dow held up better than other indexes in the first three months of this year, when many investors huddled in blue-chip stocks for relatively safety.

And you could argue that the Dow was flashing an early warning last month of more turmoil to come in the financial sector -- which is exactly where we’re at.