Long historical performance and the last years of the DJIA 30 index
Comparison of the Dow with the S&P 500 and the Nasdaq 100
Remember the US accounts for more than 50% of the world’s stock markets:
The DJIA 30 or Dow Jones Industrial Average 30 is the oldest and most traditional index in the US stock market, an important benchmark of the global stock market and with a notoriety only surpassed by the S&P 500
Often referred to simply as “the Dow”, the DJIA is one of the oldest and most single indexes in the world.
For investors, the Dow Jones is defined as a set of shares of blue-chip companies with consistently stable profits.
Even today, for many investors, a strong Dow means a strong economy, while a weak Dow means a slowing economy.
The growing importance of the S&P 500 index (created in 1957) replaced the original DJIA 30 (Dow Jones Industrial Average) (created in 1896) as the main US market index.
The S&P 500 is more comprehensive because it is based on a larger sample of total US stocks, and is weighted by market value, while the Dow Jones is price weighted.
The DJIA 30 index or the Dow
The Dow Jones Industrial Average (DJIA) is an index that tracks 30 major blue-chip companies trading on the New York Stock Exchange (NYSE) and NASDAQ.
DJIA is a price-weighted index. Stocks with higher prices have a higher weight in the index. Thus, a greater percentage change in a stock with higher prices will have a greater impact on the final calculated value.
The key aspect about DJIA is that it is not a weighted arithmetic average, nor does it represent the market capitalization of its component companies, such as the S&P 500. On the contrary, it reflects the sum of the price of a stock for all components, divided by the divisor. Thus, a movement of a point in any of the component stocks moves the index by an identical number of points.
DJIA’s current market capitalization is about $8.35 trillion.
Its sectoral composition is as follows:
The largest sector is information technology with 23%, followed by health with 18%, industry with 16%, durable consumer goods with 15%, financial with 12%, consumer goods with 8%, telecommunications with 4%, and subsequently energy and raw materials.
The following graphic shows the logos of some of the companies that have been part of DJIA for some years, in which we can recognize many of the world’s largest companies whose goods are consumed and consumed around the world:
The 30 companies that currently constitute it are as follows, marking the date of entry into the index:
In the following link we have a brief characteristic of this index:
https://us.spindices.com/indices/equity/dow-jones-industrial-average
Long historical performance and the last years of the DJIA 30 index
The following chart shows the evolution of the Dow since 1896 to date, having recently reached the 30,0000-point bar:
The following chart shows the history of evolution, and the Dow’s various landmarks between 1896 and 2016, including presidential mandates:
The DJIA 30 index recorded an average annual nominal yield of close to 7.7% between 1921 and 2019, well above the 5.5% per year provided by 10-year treasury bonds and 3.3% annual 3-month treasury bills, and only exceeded by small stocks of 11.8% per year. The index recorded appreciations in 74% of the years.
The evolution of the DJIA index in the last years to September 2020 was as follows:
The following table shows its annualised returns over the last 10 years to September 2020:
The annualised profitability of the DJIA 30 was -0%, +6.3%, 11.1% and 11.8% on investments made in the 1, 3, 5 and 10 years more recent.
The following table shows the returns recorded in each year of the last 10 years:
Comparison of the Dow with the S&P 500 and the Nasdaq 100
The Dow contains only 30 stocks of major leading companies listed on the NYSE and Nasdaq, is a stock-weighted index, and represents the largest companies in the various sectors.
The S&P 500 contains 500 shares of the NYSE’s largest-cap companies, is weighted by stock market capitalization, and represents the U.S. economy.
The Nasdaq 100 contains the top 100 capitalizations listed on this stock exchange, all non-financial, weighted by the market capitalization, and represents mostly the technology sector.
Both the Dow and the Nasdaq 100 are impacted by the performance of individual stocks as they derive more than 50% of their value from the top 10 stocks. However, the S&P 500 is more diverse, with the top 10 stocks bearing a total weight of 26 percent (July 2018 data):
Each of the three indexes offers a different exposure.
The Dow is the least volatile as it is major leading companies with lower fluctuations, while the Nasdaq 100 is comparatively more volatile due to its considerable exposure to high-growth technology stocks. The S&P 500 is somewhere in the middle, but like most other indexes, it falls faster than rallies.
The following chart shows the comparative evolution of the Dow, S&P and Nasdaq 100 between 1999 and 2020:
We see that in this 20-year period, the Dow and the S&P show about the same performance, growing 200%, while the Nasdaq 100 performed clearly better, with a 600% appreciation.
