Stocks Soar as the DJIA Welcomes Nvidia and Sherwin-Williams.

Stocks Soar as the DJIA Welcomes Nvidia and Sherwin-Williams
Stocks soared on Nov. 6, 2024, to new all-time highs. Election elation was in full swing. However, there was other good news waiting in the wings.
 
On Friday, November 8, 2024, Intel and Dow Inc. get the boot, and Nvidia and Sherwin-Williams will be welcomed into the Dow Jones Industrial Average Index. These two companies will join 28 other companies in the 30-component index. The DJIA has been freshening up the index, which now includes Amazon, Apple, Microsoft and Nvidia – 4 out of the Magnificent 7 companies (minus Meta, Google and Tesla). So, is the DJIA now preferable to the S&P500?
 
Here are the topics we’ll cover in this blog.
 
In With the Champions, Out With the Duds 
Will the AI Bubble Pop? 
How Hot are the 30 DJIA Companies? 
S&P500 Performance Versus DJIA 
 
And here is more information on each topic.
 
In With the Champions, Out With the Duds 
It’s easy to see from the graph below that Nvidia is a company with far greater prospects than Intel at this moment in time. 
 

​Nvidia has become the most valuable corporation on the planet, surpassing Apple last week, with a current market cap of $3.57 trillion. As I mentioned in my chip blog of Oct. 16, 2024, semiconductor companies have become a tale of two cities. Generative AI is all the rage, and Nvidia is the world leader. Meanwhile, semiconductors that are integral to the automotive and industrial industries, such as Intel, are experiencing a pullback in CAPEX spending by their customers. You can see that in the analysis graph above where Nvidia’s year-over-year sales growth more than doubled, while Intel’s revenue is -6.17% lower than the same quarter a year ago.
 
Will the AI Bubble Pop? 
While investors are excited about the new companies in the DJIA, pushing the index to a new all-time high on Nov. 6, 2024 (also on election elation), there are also a few analysts warning of a potential bubble in artificial intelligence companies.
 
There are typically two cycles in any new industry. The first phase is an explosion of hype, possibility and investor interest which drives valuations to the nether sphere. Then the bubble pops. The best companies survive, but not without getting drug down in the fallout. As one example, Apple launched the game-changing iPhone smart phone on June 29, 2007. However, between the iPhone launch and the bottom of the Great Recession on March 9, 2009, share prices of Apple lost almost -60% of their value, dropping from $7.25 on Dec 27, 2007, to $2.94 Jan. 30, 2009. Yes, hanging on seems like a great deal. However, when you lose 60% of your wealth, you might have to sell low to cover bills or sleep at night. (Rebalancing at least once a year and maintaining a diversified, age-appropriate wealth plan is always in season. Click to access our Rebalancing IQ Test.)
 
Nvidia, like Apple, is likely to be one of the most exciting companies in the world for many years to come. However, the Dow Jones Industrial Average index is adding Nvidia at an all-time high. The price earnings ratio is 68 – staggering even for a company with Nvidia’s growth, which is one of the reasons why the share price has traded in a very narrow range since June of this year. The good news is already baked in. The company had $30 billion in net income last year and is worth over $3.6 trillion. (How many small business owners would love to enjoy valuations that are 68 times their net income!)
 
The Dot Com Bubble reminds us just how expensive supernovas can be when they burst. The NASDAQ Composite Index and Dot Com stocks were just as popular and noteworthy in 1999 as artificial intelligence is today. Everyone was bragging about their AOL gains, until AOL and Time-Warner merged – after which Ted Turner bemoaned losing $7 billion in a day. Between March 2000 and October 2002, the NASDAQ lost -78% of its value. $1 million plunged to $220,000. It took 15 years for the NASDAQ Composite Index to crawl back to its March 2000 highs.

The best companies will survive. Infoseek and Excite (search engine and portal) went bankrupt, while Google went on to launch one of the most successful IPOs of all time (in 2004). Like Google, Nvidia will remain relevant and prosper in the decades to come. However, even exceptional companies in the industry of the future can experience volatile swings in valuation.
 
How Hot are the 30 DJIA Companies? 
Even with the addition of Amazon, Apple, Microsoft and Nvidia, most (23) of the DJIA were founded before 1975. Merck was founded in 1668! While their names might be household names, such as Coca-Cola, Johnson & Johnson, Walmart, and McDonald’s, older companies tend to be overleveraged, with very high debt, and slow or negative earnings growth. Email [email protected] if you'd like a list of the 30 DJIA components.
 
As an example, Boeing is still one of 30 companies in the DJIA. Boeing’s credit rating is at the lowest rung of investment grade (BBB-, with a negative outlook). While the end of the machinist’s strike on Monday, Nov. 4, 2024, was welcome news, Boeing has a long way to go to turn around from the plane crashes, leaving astronauts stranded on the space station, and to crawl out of the threat of a downgrade to junk status (which would likely cause a delisting from the DJIA).
 
Additionally, a lot of the DJIA components have a very big CO2 footprint. How many of us are aware that 3M is a petrochemical company that was forced to pay a $2.3 billion settlement for pollution due to its forever chemicals, or that over half of each barrel of oil is used to make plastic, polyester, asphalt, vinyl, rubber, and other petrochemical products that touch our lives daily? Learn more in my blog, “DJIA: Full of Fossil Fuels and Forever Chemicals.”
 
S&P500 Performance Versus DJIA 
Over the past two years, the S&P 500 has scored very impressive gains. The total return of 2023 was 26%, and the index has risen another 26% year to date in 2024. As you can see in the chart below, this is far above the performance of the DJIA. The NASDAQ Composite Index has even more spectacular returns. This illustrates why it’s important for us to know what we own, and have an age-appropriate, diversified portfolio that includes growth, value, small, medium, large and hot industries, such as artificial intelligence.

Source: MSN.com (c) Microsoft. Used with permission.

Bottom Line
Even with Nvidia joining the DJIA, there are many reasons to opt for the S&P500 instead – even better if we diversify into large cap value and growth, which perform differently and have unique roles in our wealth plan. (The DJIA & S&P500 are core indices with both value and growth in them.) It’s also important to remember small caps outperform large caps (traditionally), whereas the large caps tend to offer stability. All stocks can fall in a recession, which is why it is just as key to keep at least a percentage equal to our age safe, and to know what is safe in a world where long-term bonds lost more than stocks in 2022 (and haven’t clawed back the losses).
 
You can read about our time-proven, diversified wealth plan in The ABCs of Money 6th edition. You can learn and implement this easy strategy at our Financial Freedom Retreat, which will be held online January 10-12, 2025. If you would like an unbiased 2nd opinion of your current plan, email [email protected] for pricing and information about my private coaching.

Join us for our Online New Year, New You Financial Freedom Retreat Jan. 10-12, 2025. Email [email protected] or call 310-430-2397 to learn more. Register by Nov. 15, 2024 to receive the best price. Click for testimonials, pricing, hours & details.

Join us for our Restormel Royal Immersive Adventure Retreat. March 7-14, 2025. Email [email protected] to learn more. Click for testimonials, pricing, hours & details. There is very limited availability. Register now to ensure that you get the exact room you want. This retreat includes an all-access pass to all of our online training for a full year for two, and three 50-minute private, prosperity coaching sessions. Much more affordable than you might think. Email [email protected] to learn more.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.