Historic Milestone! Dow Tops 40,000 for First Time, Spotlight on Related ETFs Beyond Component Stocks

Investing with moomoo wrote a column · May 20 18:47

The Dow Jones Industrial Average closed above 40,000 for the first time last Friday, marking a significant milestone as it doubled the index level reached shortly after Donald Trump took office as the 45th president.

The surge to this historic high had been anticipated earlier in April but faced delays due to robust economic indicators and March's inflation uptick, coupled with Federal Reserve officials signaling that rate cuts were not on the immediate horizon.

However, an encouraging drop in inflation reported earlier this week helped to fuel this latest rally. Consumer prices rose 3.4% from last April – a decline from March's 3.5% annual increase. Despite the Fed's current stance, market sentiment, as reflected in the CME FedWatch Tool, suggests that investors are still betting on the central bank to lower interest rates twice by year-end, fostering optimism in financial markets.

Historic Milestone! Dow Tops 40,000 for First Time, Spotlight on Related ETFs Beyond Component Stocks

Launched in 1896 with 12 primarily industrial companies, including railroads and oil firms, the Dow Jones Industrial Average expanded to 30 components by 1928 and has undergone numerous changes to reflect the evolving U.S. economy. Regular reevaluations ensure that the index represents current economic leaders, exemplified by significant changes like the 1932 replacement of eight stocks and the 1991 swap of U.S. Steel for Martin Marietta.

The index now includes leading technology firms like $Microsoft (MSFT.US)$ , $Amazon (AMZN.US)$ and $Apple (AAPL.US)$ , replacing historical industrial giants such as $Eastman Kodak (KODK.US)$ and Sears Roebuck. The adjustment underscores the significant transformation from traditional manufacturing to technology and services, and has solidified the Dow's role as a key indicator of economic health and trends in the United States.

Since 1983, the Dow Jones Industrial Average has demonstrated a robust growth pattern, doubling approximately every 8.1 years, a stark acceleration compared to the period before 1983 when it took over 24 years for the index to double.

As one of the oldest U.S. stock market indexes, the Dow Jones Industrial Average serves as a proxy for the broader economy's health. Strong Dow performance generally suggests a robust economy, while a faltering Dow indicates economic downturns. It features blue-chip companies with stable earnings, closely mirroring economic growth trends, making it a key barometer for economic performance.

ETFs Related to Dow Jones Industrial Average

$SPDR Dow Jones Industrial Average Trust (DIA.US)$ provides a direct route for investors aiming to track the performance of the Dow, which includes 30 major U.S. firms known for robust fundamentals. While not as diverse as other ETFs, DIA appeals for its safe exposure to large-cap equities, favored for their defensive nature and reliable dividends rather than growth potential. The fund is predominantly invested in healthcare (21%), with significant allocations in information technology and financial sectors.

$Guggenheim Dow Jones Industrial Average® Dividend ETF (DJD.US)$ reinterprets the traditional Dow Jones Industrial Average by focusing on dividend yield rather than price. It selects companies that have consistently paid dividends over the past four quarters, weighting them by yield to enhance portfolio returns and correct sector imbalances.

$Proshares Ultra Dow30 (DDM.US)$ seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Dow Jones Industrial AverageSM.

$ProShares UltraShort Dow30 (DXD.US)$ provides 2x inverse exposure to the Dow Jones Industrial Average, Best suited for short-term trading due to its leverage and inverse structure, DXD requires vigilant daily management because of its path dependency and the DJIA's outdated sector biases. Investors should prioritize total trading costs over the expense ratio when managing exposure.

$ProShares UltraPro Dow30 ETF (UDOW.US)$ offers 3x leveraged exposure to the Dow Jones Industrial Average, optimized for short-term trading. Using futures and derivatives, it aims to triple the DJIA's daily performance. However, over longer periods, its returns can significantly deviate from the intended 3x target, particularly in unfavorable trends. Investors must consider trading costs and understand the risks of leverage before engaging.

$ProShares UltraPro Short Dow30 ETF (SDOW.US)$ offers 3x inverse exposure to the Dow Jones Industrial Average, designed primarily for aggressive, short-term trading against the index. However, due to the effects of daily compounding in a leveraged inverse ETF, holding SDOW for more than one day can lead to performance deviations from its intended 3x inverse target. This makes it essential for investors without daily rebalancing capabilities to limit their holding period to one day. Trading costs are a crucial consideration for potential traders of this fund.

Source: Yahoo Finance, Bloomberg, Investopedia.

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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