Perhaps The ‘Dow Jones’ Should Now Be Called The ‘Goldman Sachs’ Industrial Average – Here’s Why

U.S. stocks have had quite a rally in the last month, but in the large-cap space, the clear leader has been the Dow Jones Industrial Average (DJIA). While much of the strength in the DJIA has been chalked up to the index being full of old-line industrial stocks that stand to benefit from a Trump victory, practically all of the outperformance can be summed up in two words – Goldman Sachs (NYSE:GS ).

Written by Bespoke Investment GroupBespoke Investment Group

Because the DJIA is price weighted, stocks in the index with the highest share prices have the highest weighting, while stocks with the lowest share prices have the lowest weighting… This is a ridiculous method of weighting an index, but the DJIA has withstood the test of time, so who are we to argue. Plus, it’s not like we haven’t seen other methods of weighting over the years that weren’t just as peculiar.

The table below lists each of the DJIA’s current components sorted by their current weighting in the index along with their performance since election day and how many points each stock has contributed to the DJIA’s overall gain since election day.

At the top of the list is GS, which has an 8.4% weighting in the index.

Not only is Goldman the most heavily weighted stock in the Dow, but it is also far and away the best performing stock in the index since election day. In fact, of the 1,282 points that the DJIA has added in the last month, Goldman accounts for 408 of those points, or 32% of the gain.

The next biggest contributor since election day – UnitedHealth (NYSE:UNH) – has only added 112 Dow points.

Without Goldman, instead of being up 7% since election day, the DJIA would be up less than 5%.

Looking at the current weightings of the index, the DJIA is looking increasingly top heavy.

Not only does Goldman by itself account for over 8% of the index, but the top five stocks in the index account for a staggering 31% of the index.

At the other end of the spectrum, major U.S. stocks which are among the largest in terms of market cap have weightings of less than 2%. Take General Electric (NYSE:GE), for example. While it is one of the ten largest U.S. companies in market value, its weighting in the Dow is barely 1%. Put another way, the stock could go to zero and it would have less of an impact on the Dow than a 15% drop in Goldman.