In a post earlier today, we noted that despite the quirky manner in which the Dow Jones Industrial Average (DJIA) is constructed, it tends to track the broader S&P 500 pretty well over time, including so far in 2016. The fact that the two have tracked each other so closely is even more impressive given the way different sectors are weighted in each index. The chart below compares the percentage weighting of each sector in the S&P 500 versus the Dow. Then, in the bottom chart, we show the spread between the weighting of each sector in the S&P 500 minus its weight in the Dow.
While the weighting for many sectors is roughly similar in both instances, some have large variances. The largest disparity is in the Industrials sector where its weight in the Dow is about double its weight in the S&P 500. While this disparity is large, when you consider the fact that it is called the Dow Jones Industrial Average, it makes sense that the index would be weighted towards Industrials. Similarly, the DJIA has no stocks from the Utilities sector, but that’s because Dow Jones has a Utilities index as well. Besides these two rather wide divergences, relative to the S&P 500, the DJIA is underweighted in Technology, Real Estate, and Consumer Staples, while it’s overweighted in Financials and Consumer Discretionary.