After a choppy year, the Dow Jones Industrial Average is just barely positive. The DJIA, as of Tuesday’s close, has risen 0.47% so far this year.
That seems like a decent performance, given concerns about Treasury yields, trade wars, and other concerns. But the Dow Jones index actually is trailing other broad market measures. The S&P 500 has gained almost 2% over the same period. Meanwhile, the small-cap Russell 2000 hit a new all-time high on Tuesday.
As I’ve written before, I believe the Dow Jones Industrial Average gets too much attention. But it is an interesting barometer for the market as a whole — and it’s widely followed by the media and investors. For those of us concerned about the market’s performance over the next few months, that doesn’t look like a good thing.
The Dow Jones Underperforms
The 30 stocks in the Dow Jones Industrial Average change over time. The most recent significant changes came in 2013, when Goldman Sachs Group Inc (NYSE:GS), Nike Inc (NYSE:NKE), and Visa Inc (NYSE:V) replaced Alcoa Corp (NYSE:AA), Bank of America Corp (NYSE:BAC), and HP Inc (NYSE:HPQ) (then known as Hewlett-Packard before its split).
Since then, there’s only been two changes. In 2015, Apple Inc. (NASDAQ:AAPL) replaced AT&T Inc. (NYSE:T). Last year, DowDuPont Inc (NYSE:DWDP) replaced its predecessor, DuPont.
But the goal is to create 30 stocks that represent a broad cross-section of American industry. And though there are some exceptions given that the Dow Jones Industrial Average is price-weighted — Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL)(NASDAQ:GOOG) being the most notable — for the most part the DJIA fulfills its mission.
That said, it’s not hard to see why the index has underperformed the market as a whole. (The Russell 2000, for instance, has gained almost 6%.) The Dow’s focus on established companies has left it with a couple of notable laggards. The worst-performing Dow stock this year is Procter & Gamble Co (NYSE:PG), which has declined over 19%. Given the challenges facing consumer stocks at the moment, that weakness hardly seems like a surprise.
And, indeed, PG isn’t the only consumer play weighing on the index. Walmart Inc (NYSE:WMT) is off 15%, Johnson & Johnson (NYSE:JNJ) 12%, and The Coca-Cola Co (NYSE:KO) 8%.
The space hasn’t been a total negative. NKE, AAPL, and V all are up double-digits so far this year. But the heavy concentration of consumer names overall has created a drag on the DJIA.
Will the Dow Jones Industrial Average Rebound?
Continued consumer weakness is one risk to the Dow Jones over the rest of the year. But there are more reasons for concern. Many of the index’s outperformers look a bit stretched. Shares of Boeing Co (NYSE:BA), the top performer this year, have almost doubled, and trade at an all-time high. NKE, V, and Intel Corporation (NASDAQ:INTC) all look potentially overvalued.
Meanwhile, the DJIA is missing some of the most exciting stocks in the market. None of the FANG stocks are included. The software space isn’t represented outside of Microsoft Corporation (NASDAQ:MSFT), itself not a particularly fast grower at this point. What tech exposure the Dow Jones Industrial Average does have mostly is limited to hardware plays like AAPL and Cisco Systems, Inc. (NASDAQ:CSCO). Those companies — even with AAPL itself not far from an all-time high — aren’t posting a lot of growth.
All told, the underperformance of the index so far this year very well may continue — particularly if the market as a whole continues to rise. The large-cap, older nature of Dow stocks could be a plus if the market declines. But if not, investors are better off looking elsewhere.
As of this writing, Vince Martin has no positions in any securities mentioned.
