The Dow Jones uses a price-weighted method, which means that price changes in high stock price shares have a greater impact on the index than those in low stock price shares. Overnight, the largest weighted stock, UnitedHealth, plummeted 18%, dragging the Dow down by 1.2%, while the S&P 500 Index rose by as much as 0.6%. Media compilation data shows that since 1954, instances where the Dow fell by 1% or more while the S&P rose at least 0.5% have only occurred once.
The Dow Jones and S&P 500 have shown a historic divergence.
On Thursday, the Dow fell by 1.2%, while the S&P 500 Index rose by as much as 0.6%. This situation is extremely rare - media compiled data shows that the Dow has dropped by 1% or more while the S&P 500 has simultaneously risen by at least 0.5% only once since 1954.
The "culprit" of this historic divergence is the plummeting stock price of UnitedHealth.
As the highest-weighted component stock in the Dow Jones Industrial Average, UnitedHealth's stock plummeted by 18% after reporting disappointing earnings (the first time in over ten years) and lowering its full-year performance expectations, marking the largest single-day drop since 1999.
As of Wednesday's close, the Dow has fallen 6.8% year-to-date, performing better than the S&P's 10% drop and the NASDAQ 100 Index's 13% decline.
Key differences in weighting calculation methods.
This differentiation reveals the fundamental differences in the construction methods of the two major indices.
The Dow Jones uses a price-weighted method, meaning that the price changes of High Stock Price stocks have a greater impact on the index than Low Stock Price stocks; while the S&P 500 is calculated based on Market Cap, which reduces its sensitivity to abnormal fluctuations of a single stock.
Michael O'Rourke, chief market strategist at JonesTrading, stated:
"Although the major stock indices usually fluctuate in sync, today’s trend was marked by a rare significant fluctuation of a High Stock Price stock in the Dow, leading to market divergence."
In the weight ranking of the Dow, UnitedHealth is followed by Goldman Sachs, Microsoft, and Home Depot. The top spots in the S&P 500 Index are occupied by Technology giants such as Apple, Microsoft, NVIDIA, Amazon, and Meta.
