The ‘trick’ of a Dow Jones at all-time highs is called Goldman Sachs

Dow Jones at all-time highs is called Goldman Sachs

With the Dow Jones at all-time highs, the first question to ask is how it got here and what can keep it rising. Although the index is no longer the de facto benchmark on Wall Street with the S&P 500 next to it, it is still the way most Americans track the stock market. This is confirmed by the data: in the last five years there have been eight times more searches on Google for “Dow Jones” than for “S&P 500”.

Seeking to serve the interests of both the stock market and Main Street, Datatrek co-founders Nicholas Colas and Jessica Rabe have calculated in their daily commentary the contribution in points of the 30 components of the Dow since the end of last year to determine what values ​​are leading to the average to all-time highs.

The first step has been to determine that the Dow is very concentrated since 10 of its 30 names represent slightly more than half (53%) of the index: Goldman Sachs (7.7%), UnitedHealth: (7.6%) , Home Depot (6.3%), Microsoft: (5.3%), Salesforce (4.5%), Boeing, McDonalds, Visa and Honeywell (4.4% each) and Amgen (4.2% each) ).

The next step has been to verify that the Dow has risen 4,893 points since last December 31 and only three names represent almost half (47%) of these gains: Goldman Sachs (27% of these gains with 1,332 points), Microsoft (10% with 477 points) and Home Depot (10% with 476 points).

If five more names are added to this podium, it turns out that only eight companies account for three-quarters of the Dow’s profit so far this year: American Express (7% of profits with 365 points), UnitedHealth (a 7% with 348 points), Caterpillar (5% with 247 points), JP Morgan (5% with 233 points) and Nike (4% with 184 points).

Therefore, Datatrek experts conclude, “Given the concentrated nature of the Dow, it is important that its heavyweights perform better so that the index continues to make new highs.” Its first, third and fourth-largest stocks ( Goldman SachsHome Depot and Microsoft), “represent almost a fifth of the Dow, at 19.3% of its weight, and have an average profitability of 38% so far. of the year”, they point out.

Fine-tuning a bit more, analysts find that “the Dow has greater exposure to the financial sector than the S&P 500, at 13.6% versus 11.5% respectively, and the huge contribution in points from Goldman Sachs (a quarter of the Dow’s returns over the year) shows that its huge exposure to capital markets has served as a tailwind for the index.”

“Strong M&A activity, the rise of SPACs, and volatility in the capital markets, among other factors, have helped Goldman perform better this year. Of course, the rate hike has also driven so much. to Goldman as to JP Morgan (with a weight of 3% in the Dow) during the last week. This is the recipe for Goldman to continue leading the Dow towards new highs”, they emphasize.

“The other two biggest winners from the Dow – Home Depot and Microsoft – benefit from important economic and social trends that we regularly highlight. In the case of Home Depot, the trend toward suburbanization in the US continues. In the case of Microsoft, it has become a staple name in the US big tech trade and the lack of regulatory overhead helps too. Even with renewed concern about coronavirus variants, its cloud services and offerings enable a tech-centric world”, they say.