The much-heralded 20,000 milestone reached by the Dow Jones Industrial Average (DJIA) garnered major media attention, but that’s due more to the fame of the index than its importance as a bellwether of the economy.
After all, the DJIA consists of only 30 names, making it far less diversified than the S&P 500 Index. The Dow also utilizes a price-weighting method that places an arbitrary importance on individual stocks.
What the Dow represents
• The Dow has a significant bias toward the financials and industrials sectors, and little exposure to the so-called “bond proxies,” including telecommunications, utilities, consumer staples, and REITs stocks.
• The index also has an overweight to legacy technology companies, stocks like IBM and Cisco, historically focused on desktop computing. At the same time, the Dow does not include large internet service and social media tech companies like Google and Facebook.
Other major milestones
• The Dow hit the 10,000 milestone on March 29, 1999, but plummeted to 7114 during the financial crisis.
• In the early part of the recovery from the Great Recession, the Dow crossed the 15,000 mark on May 7, 2013. The Dow reached 19,000 on November 22, 2016.
The Dow has rivals
• Standard & Poor’s launched its first “Composite Index” in 1923, but the S&P 500 Index as we know it today was launched in 1957. The S&P 500 today represents $2.2 trillion of stock market capitalization, and there is more than $7.8 trillion in assets benchmarked to the index.
• Among other important indexes, the Nasdaq has set several record highs since the 2016 U.S. election. There are no small-cap companies in the Dow. The Russell 2000 Index — as a benchmark for small caps not found in the Dow — has hit 15 record highs since the election.