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Why's the Dow Down While the S&P and Nasdaq Hit Record Highs?

By Dan Caplinger – Updated Nov 19, 2021 at 6:01PM

Key Points

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A big bifurcation in the market is continuing.

The stock market was sharply mixed on Friday, with investors getting two very different pictures of what's happening in the market. If you look at the Dow Jones Industrial Average (^DJI -0.61%), you'd think that Wall Street was sharply lower, with the Dow trading down 175 points to 35,696 as of 12:30 p.m. ET. However, the S&P 500 (^GSPC -1.11%) was up 8 points to 4,712, and the Nasdaq Composite (^IXIC) jumped 112 points to 16,106 -- both in line to set new record highs if they can keep their current levels.

Investors have used the Dow as a proxy for the stock market  for more than a century. However, that benchmark has never been a perfect barometer of the overall market, and today's activity shows some of its weaknesses in trying to reflect what's happening across Wall Street.

Wall Street sign in front of New York Stock Exchange.

Image source: Getty Images.

2 stocks, 132 Dow points

The typical criticism of the Dow is that it's a price-weighted index. That gives the stocks that have the highest share prices proportionally more weight in driving moves in the average than stocks with lower share prices -- even if the total market capitalization of the lower-priced stock is actually considerably higher.

That weakness was evident today in the movements of just a couple of stocks. UnitedHealth Group (UNH 1.33%) is by far the highest-priced stock in the Dow, and its move lower of not quite 2% sent the share price down about $8.50. Given the way the Dow gets calculated, the health insurer's downward move cost the Dow between 57 and 58 points all by itself.

Meanwhile, Boeing (BA -0.59%) no longer has quite as high a stock price as UnitedHealth, but it suffered a bigger decline on Friday. With the stock down about $11 per share, Boeing's downward move cost the Dow almost 75 points.

Combine the two stocks, and the downward pressure added up to about 132 points. Meanwhile, stocks like Nike (NKE -1.93%) and Apple (AAPL -1.76%) put up gains of between 1% and 3%, but their influence on the Dow was minimal because of their much-lower share prices.

Old economy and new

Even when you set aside the Dow's foibles, though, another key distinction across benchmarks is also creating disparate performance. One of the key news items in the market today involves a resurgence of COVID-19 cases across Europe, and that's making investors fearful about the possible ramifications of a return to lockdowns in certain parts of the world.

In particular, old-economy stocks are taking the brunt of it. Boeing is a good example, but also taking hits within the Dow were energy giant Chevron (CVX -2.35%) and chemicals company Dow (DOW -1.16%). An economic slowdown would hurt industrial activity, potentially reducing demand for energy products along with key materials for various production processes.

However, it would potentially bolster greater use of technology for use in new-economy applications like working from home. The Nasdaq's gains were powered largely by sharp rises in semiconductor stocks, with newer leaders like Nvidia (NVDA 0.14%) and Micron Technology (MU -3.03%) taking the ascendancy over the lagging Dow member Intel (NASDAQ: INTC).

Be ready for a tug of war

These trends have been fighting each other since the pandemic began, and they'll continue to play out in the months to come. In the meantime, when you see the Dow and other benchmarks diverging, looking more closely will usually reveal a dynamic similar to this one.

Dan Caplinger owns shares of Apple, Boeing, Nike, and UnitedHealth Group. The Motley Fool owns shares of and recommends Apple, Nike, and Nvidia. The Motley Fool recommends Intel and UnitedHealth Group and recommends the following options: long January 2023 $57.50 calls on Intel, long March 2023 $120 calls on Apple, short January 2023 $57.50 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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