Nasdaq Correction: Was It a Mistake to Add Nvidia, Amazon, and Salesforce to The Dow Jones Industrial Average?

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Daniel Foelber, The Motley Fool

Tue, Mar 25, 2025, 2:41 AM 5 min read

The Dow Jones Industrial Average (DJINDICES: ^DJI) has changed a batch successful caller years. In 2020, Salesforce, Amgen, and Honeywell International replaced ExxonMobil, Pfizer, and RTX, respectively, and successful February 2024, Amazon replaced Walgreens Boots Alliance. Last November, Nvidia booted out Intel, and Sherwin-Williams replaced chemic institution Dow.

Adding galore tech-focused companies has shifted the equilibrium of the Dow toward maturation and distant from worth and income. Many maturation stocks are selling disconnected this year, and investors whitethorn beryllium wondering if it was a bully thought to revamp the Dow.

After all, the Nasdaq Composite (NASDAQINDEX: ^IXIC) is in a correction -- which is simply a drawdown of astatine slightest 10% from a caller high. Tech-focused Dow stocks -- similar Nvidia, Amazon, and Salesforce -- person been selling off, too.

Read connected to larn wherefore changes to the Dow assistance the scale amended correspond the U.S. banal market. I'll besides sermon however to presumption the Dow, compared to the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq.

A metallic bull and carnivore basal connected apical of a paper with a banal illustration and banal terms data.

Adding tech-focused companies has altered the creation of the Dow. But truthful has the outperformance of the fiscal sector.

The Dow is simply a price-weighted scale -- meaning that banal prices, alternatively than marketplace caps, interaction the weightings. The banal prices of galore fiscal stocks person gone up arsenic the fiscal assemblage was 1 of the top-performing areas successful 2024. But nary of these companies person issued banal splits successful caller years, giving financials a higher weighting the Dow.

At implicit $560 a share, Goldman Sachs is presently the highest-weighted Dow component. Visa is the seventh-highest weighted, American Express is 15th, Travelers Companies is 12th, and JPMorgan Chase is 14th. Combined, these 5 fiscal companies marque up 23.9% of the index, which is higher than the combined weighting of Microsoft, Salesforce, International Business Machines, Apple, Amazon, Nvidia, and Cisco Systems, which marque up 22.2%.

Amazon and Nvidia underwent banal splits earlier being added to the index. Although Nvidia and Amazon are 2 of the astir invaluable companies successful the world, they some clasp below-average weightings successful the Dow.

Still, there's nary denying that the Dow is much growth-focused than successful years past. The beardown show of fiscal stocks has stretched their valuations, truthful the Dow isn't arsenic value-focused, either.

During a growth-fueled banal marketplace sell-off, investors would typically expect the Dow to clasp up a batch amended than the S&P 500 oregon the Nasdaq Composite. This is due to the fact that during marketplace sell-offs, investors are much apt to scrutinize valuations and wage little for imaginable net growth, particularly if an economical downturn whitethorn hold that growth.