The Dow Jones Industrial Average (DJINDICES: ^DJI) traded higher for 13 consecutive days in July as falling inflation, better-than-expected earnings, and excitement surrounding artificial intelligence invigorated investors. That marks the longest winning streak for the Dow Jones since 1987 and one of only six times the blue chip index closed higher for at least 10 consecutive trading sessions in the last four decades.
That momentum hints at further gains in the remaining months of the year. Here's what investors should know.
History says the Dow Jones could soar 16.8% in 2023
As mentioned, the Dow Jones has traded higher for at least 10 consecutive days on only six occasions in the last four decades, and those events usually coincided with robust returns for the full year. Indeed, as shown in the chart, the Dow Jones returned an average of 16.8% in years when the index strung together winning streaks lasting 10 days or longer.
|
Year |
Dow Jones Industrial Average Return |
|---|---|
|
1987 |
2.3% |
|
1992 |
4.2% |
|
1996 |
26% |
|
2013 |
26.5% |
|
2017 |
25.1% |
|
Average |
16.8% |
Data source: Business Insider, YCharts. Chart by author.
So what? The Dow Jones is currently up 7.5% year to date, meaning the blue chip index could add another 9.3% in the remaining months of the year if the current situation falls precisely in line with the historical average.
As a caveat, past performance is never a guarantee of future returns, and investors shouldn't make decisions based on what might happen over a five-month period. But patient investors should still consider buying an index fund that tracks the Dow Jones Industrial Average as it has historically been an excellent long-term investment.
The SPDR Dow Jones Industrial Average ETF
The SPDR Dow Jones Industrial Average ETF (DIA -0.74%) is an index fund that provides exposure to all 30 Dow stocks, meaning it spreads capital across many iconic companies that have demonstrated consistent growth over time. Indeed, the Dow Jones is the only index where inclusion is predicated upon "sustained earnings performance over a significant period of time," according to State Street Global Advisors.
The 10 largest holdings in the SPDR Dow Jones Industrial Average ETF are detailed below:
- UnitedHealth Group: 9.4%
- Goldman Sachs Group: 6.6%
- Microsoft: 6.3%
- Home Depot: 6.2%
- McDonald's: 5.5%
- Caterpillar: 4.8%
- Boeing: 4.4%
- Amgen: 4.4%
- Visa: 4.4%
- Salesforce: 4.2%
Investors should always consider the expense ratio before putting money into an index fund. In this case, everything looks above board. The SPDR Dow Jones Industrial Average ETF carries a below average expense ratio of 0.16%, meaning the annual fee on a $10,000 position would be just $16.
The Vanguard S&P 500 ETF
Investors looking to capitalize on upward momentum in the Dow Jones could also buy an S&P 500 index fund like the Vanguard S&P 500 ETF (VOO -1.04%). Whereas the Dow Jones tracks 30 blue chip companies from nine market sectors, the S&P 500 tracks a more diversified base of 500 large-cap companies (including all 30 Dow stocks) from all 11 market sectors.
The 10 largest holdings in the Vanguard S&P 500 ETF are detailed below. The top seven positions have been dubbed the "Magnificent Seven" stocks by Wall Street.
- Apple: 7.7%
- Microsoft: 6.8%
- Alphabet: 3.6%
- Amazon: 3.1%
- Nvidia: 2.8%
- Tesla: 1.9%
- Meta Platforms: 1.7%
- Berkshire Hathaway: 1.6%
- UnitedHealth Group: 1.2%
- ExxonMobil: 1.2%
So, which index fund is the better investment? The answer depends on risk tolerance. Risk-averse investors may feel more comfortable with the Dow ETF because it has historically been the less volatile of the two index funds. Yet it still returned 183% over the last decade, which is about 11% annually.
However, more risk-tolerant investors may prefer the S&P 500 ETF. Not only does it offer a lower expense ratio of 0.03%, but it has also been the better performer. It returned 223% over the last decade, or 12.4% annually.
