On May 17, the Dow Jones Industrial Average index hit a new high of 40,003.59 but has since dipped 3.6% due to a disappointing earnings report from Salesforce that saw a 20% drop in stock price, wiping out nearly $50 billion of its market cap. The DJIA felt the biggest impact from Salesforce’s stock selloff compared to the S&P and Nasdaq indexes. Analysts believe Salesforce is still a high-quality software stock and a potential opportunity for a rebound, as believers take advantage of the recent dip in stock price.
Despite the DJIA’s inclusion of technology companies in the last decade, the tech sector carries a lower weight of 18.4% in the index, compared to 29% in the S&P 500 and over 50% in the Nasdaq Composite. This lower exposure to tech may explain why the DJIA has underperformed the other two indexes. The Dow has lagged behind the Nasdaq Composite and S&P 500 in gains, widening the performance gap in recent months.
Suggestions have been made for the Dow 30 to consider increasing its exposure to tech stocks to align with the growth seen in the S&P 500 and Nasdaq. While changes in the Dow 30 index constituents are rare, it may benefit from more regular rebalancing to improve performance. The index, being price-weighted, is more sensitive to price changes, and typically avoids very high-priced stocks to prevent skewing the index. In contrast, the S&P 500 and Nasdaq Composite are market-cap weighted.
The Dow Jones Industrial Average includes companies from various sectors, excluding utilities and transportation companies, which have their own separate indexes. The index captures companies based on their reputation, sector representation, sustained growth, and interest from investors. The top 10 stocks in the Dow represent over half of the index and are often considered stable investment options. Three top picks from the Dow 30 stocks worth watching include UnitedHealth, Visa, and Microsoft, each with catalysts for potential growth and strong analyst ratings.
UnitedHealth offers stability through consistent earnings and dividends, with potential catalysts for a dividend increase and upcoming earnings report. Visa presents opportunities in Europe, product innovation, and a large total addressable market. Microsoft stands out for its growth in Azure cloud business and Copilot generative AI tools, with potential for substantial revenue growth. These stocks have strong buy ratings and do not trade far from their 52-week highs, making them potentially lucrative investments. Analysts expect the DJIA to rebound from recent setbacks and regain its highs above 40,000 levels.
