The Technology Caveat

That entire argument takes a back seat for those who look at tech stocks as the next big thing in the U.S. economy. Indeed, companies like Apple and Google have stolen the headlines for months now, performing so impressively that they have left even market bulls at times baffled.

Apple’s stock is up some 64 percent year-to-date and it continues to rally even as iPhone 5 sales fail to meet expectations. Meanwhile, tech giant Google has rallied more than 33 percent in the past three months alone. And the list goes on.

The importance of this tech rally as far as the Dow theory is concerned is that the Dow Jones industrial average doesn’t have any of the big tech names among its top holdings, because the index is price weighted rather than market capitalization weighted—the exception here being IBM, which represents about 11.5 percent of the benchmark.

That lack of exposure to some of today’s bellwethers of the economy makes the Dow a somewhat obsolete measure of the overall health of the economy, Paul Weisbruch, of Street One Financial, told IndexUniverse.

“The fact that technology accounts for such a large percentage of the S&P 500 Index—AAPL is No. 1 at 4.9 percent—shows that the basic tenets of ‘following the industrials and transports’ as market barometers has lost significance over time as new-economy stocks such as AAPL have ramped up their market caps,” Weisbruch said.

Arguing that while the Dow indexes “are not completely irrelevant” because of their lack of tech exposure, Weisbruch said that many fundamentally weighted strategies offer a more accurate assessment of the health of the economy.

“For more ‘pure’ analysis, we prefer to look at some newer and innovative indexes in conjunction with the S&P and Russell indexes,” Weisbruch said, citing the benchmarks that underlie a number of popular ETFs, including with volatility and beta screens.

Weisbruch included on that list funds such as the $2.46 billion PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) the $105 million PowerShares S&P 500 High Beta Portfolio (NYSEArca: SPHB), the $364 million iShares MSCI USA Minimum Volatility Index Fund (NYSEArca: USMV) and the iShares MSCI All Country World Minimum Volatility Index Fund (NYSEArca: ACWV).

“They weren’t on anyone's radars just a year or two ago, and now these, along with 'fundamentally weighted' indexes—such as PRF, DLN and RWL, for example—are more ‘true’ barometers of material fundamental changes that may be going on behind the scenes, and how these changes may filter throughout time vis-à-vis higher/lower stock prices,” he added.

Weisbruch was referring to the $1.44 billion PowerShares FTSE RAFI US 1000 ETF (NYSEArca: PRF), the $1.27 billion WisdomTree LargeCap Dividend Fund (NYSEArca: DLN) and the $158 million RevenueShares Large Cap ETF (NYSEArca: RWL).

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