Why you should keep an eye on Dow Jones Index right now
Among the three major U.S. stock indices, the $Dow Jones Industrial Average (.DJI.US)$ often gets overshadowed by the $S&P 500 Index (.SPX.US)$ and $Nasdaq Composite Index (.IXIC.US)$ . However, since July, the Dow has not only outpaced these two indices but also reached an all-time high on August 30.
This shift suggests that funds might be moving out of tech stocks and into traditional industries.
Considering this trend could continue, it may be a good time to explore investment opportunities in DJI now. Join Moomoo Learn as we delve into its ins and outs.
What is the Dow Jones Index?
The DJI has a much longer history than the S&P 500 and Nasdaq. Let’s take a look at what sectors make up the Dow today.
Traditional industries hold a significant portion, while technology sector makes up a smaller percentage compared to the S&P 500’s 31.4% and Nasdaq’s 51.0%.
The Dow has only 30 components, far fewer than the other two indices. Here are its top ten components:
This composition is quite different from the S&P 500 and Nasdaq, which are heavily dominated by the Magnificent 7 Stocks. This is because the Dow ranks its constituents according to their prices rather than market cap, reducing the impact of mega-cap companies like $Microsoft (MSFT.US)$.
How did the DJI perform against the other two major indices?
The Dow doesn't always include the top-performing stocks, and even when it does, they might not have a high weighting. For instance, despite its impressive recent gains, $NVIDIA (NVDA.US)$ isn't in the Dow. If it were added, it would only rank 23rd by stock price.
This explains why the Dow often underperforms compared to the S&P 500 and Nasdaq. Here's a look at their historical performance: (data as of Sep 10, 2024, for reference only)
Last 1 year:
Dow: 18.1%
S&P 500: 22.7%
Nasdaq: 22.7%
Last 5 years:
Dow: 51.7%
S&P 500: 83.6%
Nasdaq: 109%
Last 10 years:
Dow: 139%
S&P 500: 174%
Nasdaq: 268%
However, the Dow's lower reliance on high-flying tech stocks could make it more resilient during bear markets. Take the 2022 bear market as an example:
Dow: -8.8%
S&P 500: -19.4%
Nasdaq: -33.1%
Recent performance analysis
The Dow's recent strong performance has been largely driven by its top component, $UnitedHealth (UNH.US)$, and stocks in the consumer staples sector.
UnitedHealth has seen continuous gains since July, primarily due to its Q2 earnings beating market expectations. Given that UnitedHealth holds nearly a 10% weighting in the Dow, investors should closely monitor its fundamental changes and market expectations.
Consumer staples have recently performed well, boosted by rate-cut speculations. Stocks like $McDonald's (MCD.US)$, $Procter & Gamble (PG.US)$, $3M (MMM.US)$, $Walmart (WMT.US)$have significantly risen, positively impacting the Dow. Dow-focused investors should monitor these stocks' trends.
A Conservative strategy: "Dogs of the Dow"
For investors concerned about recent market trends, the "Dogs of the Dow" strategy may offer a defensive approach.
This straightforward strategy involves buying the 10 highest dividend-yielding stocks from the Dow. Higher dividend yields may indicate undervalued stocks, which could potentially deliver above-average returns in unfavorable market conditions.
For example, in 2022, while the Dow fell by 8.8%, the "Dogs of the Dow" portfolio gained 2.2% (including dividends).
Here is the "Dogs of the Dow For 2024" list, while WBA has been replaced by MRK.
Bottom Line
To summarize,
1. The Dow has the potential to outperform when tech stocks are underperforming.
2. For risk-averse investors, the "Dogs of the Dow" strategy may offer a defensive investment approach.
Lastly, here are two ways to invest in the Dow on the moomoo platform:
2. ETFs: Go to the DJI's Detailed Quotes > ETFs (you can also view component stocks here)
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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102188573 : Historically, Sep is not friendly for stock market
Chaoren1993 : Bank stocks are quite bearish now so avoid Dow for now
103824105 : Hi, how much is a point move in the micro e-mini Dow, say 40950 to 40951 up one point,anyone?
102188573 Chaoren1993 : There's few bank stock in Dow Jones Index