Dow Average Showing Its Age Getting Crushed in Recovery Trade

(Bloomberg) -- This week marks a milestone for the Dow Jones Industrial Average: its 124th birthday. Not that anyone watching markets needs a reminder it’s getting old.Wrinkles show in the gaping divide between the venerable gauge and its younger brethren. Like many grandparents, it’s struggling to keep up with tech. Plunges in Boeing Co. -- its biggest member at the start of February -- were very costly, and some wonder if the benchmark represents the 21st century economy at all, especially in the coronavirus age.“The Dow has been on its way out for years,” said John Ham, associate adviser at New England Investment and Retirement Group. “Obviously it’s going to stick around just because so many people are familiar with it. But as far as relevancy goes, it’s your grandfather’s index.”Rarely have differences among indexes been more stark than they are now, in a market where the outbreak has made heroes of New Economy firms. Deprived of their benefits, the Dow remains down 14% in 2020 and was off 35% at its worst point. Meanwhile, the Nasdaq 100 has gained more than 7% this year, and the S&P 500 is 9% away from a positive return.Of course, the Dow has been consigned to history before, and survived. While it might be showing its age now, brief divergences among broad indexes are extremely common, and over long enough intervals they tend to even out.“Yes it is old,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “If you constructed something today, you would probably do it differently. But it’s worked for 124 years. Even currently. And it is a much smaller portfolio yet it does track over time to the broader S&P 500.”Judging an index by whether it rises more than another misconstrues the purpose of stock benchmarks, which is to measure the progress of a market. The S&P 500’s edge over the Dow in 2020 doesn’t make it a better or more useful tool. It does, however, shine a light on what in the economy is calling the shots during the lockdown -- online and automated companies like Amazon.com Inc. and Netflix Inc.Divergences among the gauges also matter to the masses of investors who invest in funds that track them. Roughly $11.2 trillion is indexed or benchmarked to the S&P 500, according to S&P Dow Jones Indices, and $4.6 trillion in passively managed assets are tied to it. About $31.5 billion is benchmarked to the Dow, with $28.2 billion of passively managed funds linked.Thanks to tech’s dominance, those divisions are getting especially pronounced. Less than halfway through the year, the Nasdaq has already outperformed the Dow by a full percentage point on 17 different days. That’s more than in any full year since 2009, data compiled by Bloomberg show.A lot of the discrepancy boils down to which companies don’t make the Dow’s cut. Take Amazon.com, for example, whose 35% gain this year has accounted for almost half of the Nasdaq’s advance and 10% of the S&P 500’s. Because of...