The Dow Jones made four big mistakes. We fix them.

But maybe you quote the

Dow Jones Industrial Average,

the oldest and best-known barometer of the American economy and market. By that measure, the market has been nothing more than normal: The index is up just under 3% this year.

That’s nothing out of this world. If you bought US government debt this year, you could have earned 4% to 5%. There are high-yield savings accounts that also offer a generous 5% yield.

The S&P 500 clearly shows that “we are in a roaring bull market,” wrote Matthew Tuttle, chief executive of investment firm Tuttle Capital Management.. “If you look at the Dow Jones,” it looks completely different.

The Dow Jones is price-weighted, meaning stocks with higher prices have a greater influence on the index. UnitedHealth Group
,

Dow’s most expensive stock, at $481, is down 8.6% this year. Intel, the cheapest stock, is down almost 40%. However, UnitedHealth’s price drop has affected the Dow Jones more than twice as much as Intel.

The Dow doesn’t care about market value either. A company that is more valuable but has cheaper shares: think Amazon
,

a nearly $2 billion business with shares at $183—has a smaller impact than UnitedHealth. In contrast, the S&P 500 and Nasdaq Composite are weighted by market capitalization: larger companies have a larger effect on the index’s performance.

The Dow’s performance raises a bigger question: Does its 30 components accurately make it the market’s blue-chip benchmark, encapsulating both the U.S. economy and the stock market?

There have been approximately 119 Dow component replacements since its inception more than a century ago. Picks are not governed by a strict set of rules, but instead focus on a growth story, a company’s reputation, investor interest and industry representation, says S&P Global Dow Jones Indices, which manages the Dow .

Barron He tried to build a better Dow, one with more dominant players that would better fit the index. Boeing was an obvious candidate to replace it. The embattled aviation giant has taken many hits to its reputation. The explosion of the emergency door earlier this year, following previous manufacturing problems, showed that his problems were greater. Boeing shares, which have fallen 33% this year, have put the most downward pressure on the Dow Jones.

Replace it with defense contractor General Dynamics.
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The company, which makes combat vehicles, nuclear-powered submarines and more, is best known within aviation for its quality control and its 15% profit so far this year, pointing to general investor interest. General Dynamics was a Barron stock selection in September.

Among technology companies, the Dow could benefit from Google parent Alphabet
,

one of the standard bearers of artificial intelligence. Alphabet’s stock split in 2022 made the company viable to enter. The stock used to trade at 2,255.34, which would have skewed the Dow Jones significantly. Now $175 and can beat Salesforce
.

Salesforce replaced

Exxon Mobil in 2020. And from then until the end of May, the stock has depressed the Dow Jones by about 800 points. Barron had estimated. The stock’s performance this year, down 12%, has lagged far behind the broader technology index, the Nasdaq 100, which is up 18%.

The technology market representation of network equipment supplier Cisco Systems can also be questioned. The company, founded in 1984, had its sunny days; It was the most valuable company in the world in 2000. Now its market capitalization of less than $200 billion can’t compete with the tech giants. The stock is down 9% this year.

Our suggestion is a relatively younger Arista Networks. It has been a clear beneficiary of the AI ​​enthusiasm and generates a large portion of its revenue from Microsoft and Meta Platforms, which also spend heavily on AI. The stock is up 44.5% this year.

Change Intel with

Micron technology
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It’s been a terrible year for Intel shareholders. The stock is down 39% this year and Intel recently offered disappointing guidance. However, the stock may eventually rebound if AI PC shipments increase, but the Street is much more optimistic about Micron Technology’s future. The stock is up 80% this year.

This theoretical Dow could have offered investors a 9.5% return this year through Monday’s close. Barron has calculated. It’s still below the S&P 500’s gains, but it’s at least a decent and respectable result with components that better reflect the sectors and the Dow imperative.

S&P Dow Jones Indices said it does not comment on possible changes to the index. Components, according to their methodology, are replaced as needed rather than periodic reconstitution.

Write to Karishma Vanjani at [email protected].