The Dow Jones Industrial Average (^DJI 0.61%) has changed a lot in recent years. In 2020, Salesforce, Amgen, and Honeywell International replaced ExxonMobil, Pfizer, and RTX, respectively, and in February 2024, Amazon replaced Walgreens Boots Alliance. Last November, Nvidia booted out Intel, and Sherwin-Williams replaced chemical company Dow.
Adding many tech-focused companies has shifted the balance of the Dow toward growth and away from value and income. Many growth stocks are selling off this year, and investors may be wondering if it was a good idea to revamp the Dow.
After all, the Nasdaq Composite (^IXIC +0.08%) is in a correction -- which is a drawdown of at least 10% from a recent high. Tech-focused Dow stocks -- like Nvidia, Amazon, and Salesforce -- have been selling off, too.
Read on to learn why changes to the Dow help the index better represent the U.S. stock market. I'll also discuss how to view the Dow, compared to the S&P 500 (^GSPC 0.08%) and Nasdaq.
Image source: Getty Images.
The Dow's major makeover
Adding tech-focused companies has altered the composition of the Dow. But so has the outperformance of the financial sector.
The Dow is a price-weighted index -- meaning that stock prices, rather than market caps, impact the weightings. The stock prices of many financial stocks have gone up as the financial sector was one of the top-performing areas in 2024. But none of these companies have issued stock splits in recent years, giving financials a higher weighting the Dow.
At over $560 a share, Goldman Sachs is currently 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 five financial companies make 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 make up 22.2%.
Amazon and Nvidia underwent stock splits before being added to the index. Although Nvidia and Amazon are two of the most valuable companies in the world, they both hold below-average weightings in the Dow.
Still, there's no denying that the Dow is more growth-focused than in years past. The strong performance of financial stocks has stretched their valuations, so the Dow isn't as value-focused, either.
The Dow's growth focus could make it more volatile
During a growth-fueled stock market sell-off, investors would typically expect the Dow to hold up a lot better than the S&P 500 or the Nasdaq Composite. This is because during market sell-offs, investors are more likely to scrutinize valuations and pay less for potential earnings growth, especially if an economic downturn may delay that growth.
For example, in 2020, the Dow fell less than 10%, while the S&P 500 and Nasdaq Composite had far worse sell-offs, as you can see below.
However, so far this year, the Dow is down, even though sectors typically associated with the Dow (like healthcare, financials, consumer staples, and industrials) are all up in 2025.
The Dow and the broader economy
When scanning the stock market, it's easy to get bogged down by sector labels or classifying a stock as growth, income, or value. The same can happen with indexes. In the past, the Nasdaq was typically seen as the tech-focused growth index, the S&P 500 was the balanced index representing large-cap companies across all sectors, and the Dow was all about value and income.
That mentality made more sense when the largest U.S.-based companies by market cap were names like General Electric and ExxonMobil. But today, 9 out of the 10 largest U.S.-based companies by market cap are tech-focused. The only one that isn't is Berkshire Hathaway.
Technology has become a bigger part of the U.S. economy, so it makes sense that the S&P 500 and Dow are becoming more tech-focused. Apple is arguably a modern-day consumer staple company since smartphones are integral to everyday life. Similarly, advertisers are spending more and more on Alphabet's Google search and YouTube or Meta Platforms' Facebook and Instagram, which have taken market share from more traditional outlets.
In many ways, changes to the Dow merely reflect how the economy is evolving. Nvidia is worth nearly 30 times more than Intel, which is why it's a better fit to represent the semiconductor industry. Amazon represents e-commerce in a way that a brick-and-mortar retailer could not.
In sum, it's a good idea to continue modernizing the Dow. However, investors need to be aware of index changes so they don't assume the Dow is immune from a growth-stock-led sell-off in the broader market.
