America's Most Famous Stock-Market Measure Is More Broken Than Usual

The Dow has always been flawed, but it held on to its status as the iconic gauge of American stocks because a mix of luck and design meant it mostly matched the broader market. No longer.

- James Mackintosh

Far from tracking the S&P 500 index of the top U.S. companies, the Dow Jones Industrial Average for the past two years has been left in the shade. It lagged behind the S&P by more than 10 percentage points in 2023 and 2024, a dismal performance matched in only two years since the S&P 500 was introduced in 1957. (Both, 1980 and 1998, were times of economic turmoil.)

The Dow's current problem is Big Tech. But the reason it has this problem is more fundamental: The Dow is an awful index that was designed for an era of human stock selection and slide rules and is horribly outdated in the automated age of index tracking.

Professional investors mostly ignore the Dow, though they pay close attention to the Nikkei 225, Japan's equally flawed index. Yet the Dow gets outsize attention in the media and among ordinary investors, presenting a distorted picture of what's going on with America's stocks.