March Madness and the DJIA – Winners & Losers

Newspapers, radio, and TV news programs refer to the Dow Jones Industrial Average every day, calling it the Dow, sometimes the Dow Jones or even the DJIA.  And economists and financial professionals pay close attention to its daily changes and the longer trends.  But what exactly is the Dow Jones Industrial Average, does it really matter and can one see performance patterns from year to year?

A Brief History

The Dow Jones Industrial Average is a stock market index, used to assess movements in the market and its overall strength or weakness.   It was created in 1896 by Wall Street Journal editor and co-founder of Dow Jones & Company, Charles Dow. 

The Dow tracks the market performance of 30 large, American companies. Initially, the Dow had only 12 stocks and these included such golden oldies as American Cotton Oil Company, U.S. Leather Company, and Distilling & Cattle Feeding Company.  In 1920, the Dow expanded to 20 stocks and then to 30 stocks in 1929. 

The Dow is constantly changing, although the additions and deletions don’t happen very often. In fact, the last change was in August of 2020 when Salesforce.com replaced ExxonMobil and two years before that Walgreens replaced General Electric. Due to its age, the Dow Jones Industrial Average represents a continuous chart of our nation’s economic growth, along with its ups and downs. 

Consider these milestones:

• The Dow first hit 1,000 in late 1972;
• Hit 10,000 in March of 1999;
• Reached 17,000 in July of 2014.  
• Closed above 25,000 in January of 2018; and
• Closed a whisper short of 33,000 on March 15, 2021 (closed at 32,953).

Let’s Play March Madness with the Dow

Some people think it’s a good idea to buy last year’s best Dow performers, figuring that they will continue to perform well and reward investors. Others prefer  to buy last year’s worst Dow performers, thinking  that their fortunes will magically reverse. 

So, we decided to play our own version of March Madness and rank the top companies in the Dow based on 2020 performance. So, using performance from 2020, let’s list the best and worst performers from the Dow.

2020’s Winners and Losers 

2020 was a volatile year for the DJIA, in that we saw the longest-bull market in history come to an abrupt halt, two corrections, a bear market, and maybe the beginnings of another bull market as the Dow Jones Industrial Average ultimately turned in a gain of 7.3%.

But the reality is that 2020 was a year like no other, with the pandemic wreaking havoc on markets and the economy, with the full impact still yet to be determined. But when 2020 was finally over, we saw 19 of the DJIA’s 30 stocks post positive numbers, a feat few people would have predicted back in March.

Surprisingly (or maybe not so), there were some very big winners in 2020, including Apple, which posted a gain north of 80%. Let’s look at the Dow 2020 Madness winners:

1. Apple was up 82.3%
2. Microsoft was up 42.5%
3. Nike was up 41.0%
4. Salesforce.com was up 36.8%
5. Caterpillar Inc. was up 27.0%

On the other hand, more than one-third of the DJIA companies lost value in 2020 and here are the losers of the Dow 2020 Madness:

1. Boeing Company was down 33.9%
2. Walgreens Boots Alliance was down 29.4%
3. Chevron Corporation was down 26.0%
4. Intel Corporation was down 14.7%
5. Merck & Co. was down 7.2%

What Financial Professionals Will Predict 

Let’s be honest, did you think that Apple could skyrocket more than 80% last year or that Boeing would drop over 33%? Maybe you thought that Apple would have another great year – after all, it did take the top spot in the Dow the year before, turning in a sizzling 42% gain in 2019.

But do you remember that just two years ago, Boeing was the top performer in the Dow with a return that was better than Apple’s in 2020? Well, it was as it rocketed up 89% for 2018.

But here is what financial professionals do know: every large, powerful company has good and bad years. And trying to determine future performance based solely on past performance is a bad idea. 

So, who will be the best performer for the rest of 2021? It’s anyone’s guess. Hence, the Madness. 

And the reason mutual funds are so popular.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Past performance is no guarantee of future results. 

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Dow Jones Industrial Average (DJIA), or DOW, is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system.

This article was prepared by FMeX.