Weighted stocks plummet, the Dow Jones, the "most resilient" in the U.S. stock market, suffers a sharp decline against the trend
The Dow Jones Industrial Average uses a price-weighted method, which means that price changes in high-priced stocks have a greater impact on the index than those in low-priced stocks. The largest weighted stock, Unitedhealth, plummeted 18% overnight, dragging the Dow down by 1.2%, while the S&P 500 index rose by as much as 0.6% at the same time. Media compilation data shows that the Dow has fallen by 1% or more while the S&P has risen by at least 0.5% only once since 1954
The Dow Jones and S&P 500 have experienced a historic divergence.
On Thursday, the Dow fell by 1.2%, while the S&P 500 rose by as much as 0.6%. This situation is extremely rare—media compilation data shows that the Dow has fallen by 1% or more while the S&P 500 has risen by at least 0.5% only once since 1954.
The "culprit" behind this historic divergence is the plummeting stock price of UnitedHealth.
As the highest-weighted component in the Dow Jones index, UnitedHealth's stock price fell by 18% after releasing disappointing earnings (the first time in over a decade) and lowering its full-year earnings forecast, marking the largest single-day drop since 1999.
As of Wednesday's close, the Dow has fallen by 6.8% this year, outperforming the S&P's 10% decline and the Nasdaq 100's 13% drop.
Key Differences in Weighting Calculation Methods
This divergence reveals the fundamental differences in the construction methods of the two indices.
The Dow uses a price-weighted method, meaning that price changes in high-priced stocks have a greater impact on the index than those in low-priced stocks; while the S&P is calculated based on market capitalization, making it less sensitive to unusual fluctuations in a single stock.
Michael O'Rourke, Chief Market Strategist at JonesTrading, stated:
“Although major stock indices typically move in sync, today's movement is a rare large fluctuation in a high-priced stock within the Dow, leading to market divergence.”
In the weight ranking of the Dow, UnitedHealth is followed by Goldman Sachs, Microsoft, and Home Depot. In contrast, the top positions in the S&P 500 are occupied by tech giants such as Apple, Microsoft, Nvidia, Amazon, and Meta