Why the Dow Jones Industrial Average Has Avoided the Bear So Far

Stocks continued their descent on Monday, building on dramatic losses from Friday after the latest inflation report showed greater price increases than anticipated. Losses for the Dow Jones Industrial Average (^DJI 0.69%) were roughly in line with Friday's performance, but the S&P 500 (^GSPC 1.20%) and Nasdaq Composite (^IXIC 1.59%) had even greater percentage losses.

Data source: Yahoo! Finance.

With today's declines, the Nasdaq fell to 33% below its record high from November, while the S&P 500 closed down 22% from its best levels. Yet the Dow's 17% loss remained slightly less extreme than the other two benchmarks, keeping it out of what's officially considered bear market territory. Below, we'll look at a few of the reasons the Dow has been a relative outperformer.

1. The Dow's exposure to energy

One key to the Dow's performance in 2022 has been Chevron (CVX 0.57%). The oil major has soared 43% so far this year, making it by far the Dow's biggest winner.

What might be surprising to investors is that Chevron alone gives the Dow a fair amount of energy exposure comparably. At 3.7% based on Chevron's closing price on Friday, it's not a huge portion of the average. But it's far greater than the 0.75% weighting of energy stocks in the Nasdaq. And while it is somewhat less than the S&P, Chevron has been a better performer than some of its peers among S&P 500 energy stocks.

2. A solid helping of defensive stocks

The Dow also has a greater proportion of defensive value-based stocks than the S&P 500 and Nasdaq. Drugmaker Merck (MRK -0.05%) is still up double-digit percentages on the year. Insurance giant The Travelers Companies (TRV 0.02%) is also higher, as the industry has largely been able to avoid catastrophic events so far and stands to benefit from higher bond yields. Coca-Cola (KO 0.15%) isn't a high-growth company, but it has reliable cash flow and consistent dividends. Those traits are appealing to investors right now.

Even some modest losers are contributing to relative performance. UnitedHealth Group (UNH -1.03%), for instance, can count on sustained demand for its health insurance and healthcare services businesses, and that has helped limit its losses in 2022.

Meanwhile, you won't find a huge number of high-growth darlings in the Dow. A few stocks arguably got ahead of themselves and have seen substantial moves lower to give back some of their gains from recent years. For the most part, though, losses among individual Dow components have been fairly measured, with about half of the average avoiding declines of more than 10%.

3. Smart cyclical plays

And some other stocks in the Dow have performed well because they've been able to benefit from where the current business cycle stands. Caterpillar (CAT 1.58%) has seen rising demand for heavy equipment as high commodity prices make it more beneficial to work to produce natural resources. Chemical company Dow (DOW -0.44%) similarly has opportunities to serve those benefiting from prices of key goods.

All in all, it's hard to treat a 17% drop in the Dow Jones Industrial Average as a big win for investors. But when you compare it to the much more substantial losses you're seeing in other key market indexes -- let alone some individual stocks in those markets -- it makes you appreciate the blue chip quality of the Dow and its components.