Free Trial

IBM, Verizon, Merck stocks lead Dow to new highs

IBM, Verizon, Merck stocks lead Dow to new highs

Key Points

  • The S&P 500's market-cap weighting doesn't fully reflect the strength of Dow leaders IBM, Verizon, Merck, and Travelers.
  • Reliable dividend stocks like Coca-Cola and 3M contribute to the Dow's traditional market indicator role.
  • Dow stocks Apple, Microsoft, Salesforce and Amgen benefit from emerging trends like AI, cloud computing and drug development.
  • 5 stocks we like better than Alphabet.

You don't hear as much about the Dow Jones Industrial Average as investors did a few decades ago, as the broad consensus has deemed the S&P 500 a better indicator of market conditions.

But the Dow is rallying to all-time highs, led by International Business Machines NYSE: IBM, Verizon Communications Inc. NYSE: VZ, Merck & Co. Inc. NYSE: MRK and perhaps an unlikely leader, insurance giant The Travelers Companies, Inc. NYSE: TRV.

Those first three components, hailing from the ranks of technology stocks, telecom stocks and pharmaceutical stocks, make sense, as those areas have been in growth mode. 

But insurance? 

As a whole, the decidedly unglamorous insurance industry has been on a tear. The iShares U.S. Insurance ETF NYSEARCA: IAK advanced 6.85% in January. 

Leading Dow stock gaps higher

Before reviewing the internals of the Dow itself, and whether it's become a relevant market indicator lately, take a look at the Travelers Companies chart. The stock leaped 6.72% on January 19 as the company reported core income more than doubled as premiums and income from investments rose, while catastrophe insurance payments declined.

Personal insurance premiums climbed 13% as customers' rates increased.

Travelers stock began rallying in late October and has posted a three-month gain of 32.01% and a January gain of 10.83%. 

Sure, Travelers looks like a good stock at the moment, as it's trading at new highs, and analysts expect double-digit earnings growth this year and next.

Dow gainers' S&P weightings

But its performance as a Dow leader is instructive, taken in context with fellow top performers IBM, Verizon and Merck.

Here's where those four stocks stack up in terms of weightings in the S&P 500:

  • IBM: 0.42%
  • Verizon: 0.43%
  • Merck: 0.75%
  • Travelers:  0.12%

You can pretty easily see that none of those are likely to make a dent in S&P performance to the degree of tech stalwarts and index heavyweights Microsoft Corp. NASDAQ: MSFT, Apple Inc. NASDAQ: AAPL, Nvidia Corp. NASDAQ: NVDA, Amazon.com Inc. NASDAQ: AMZN, Alphabet Inc. NASDAQ: GOOGL and Meta Platforms Inc. NASDAQ: META

The influence those stocks have over S&P performance has been widely documented. Like the Dow, the S&P 500 is also trading at new highs, driven by AI business of stocks including Nvidia, Juniper Networks Inc. NYSE: JNPR and Advanced Micro Devices Inc. NASDAQ: AMD.

Is the Dow a market strength indicator?

But that brings us back to the question of whether the Dow has renewed value as a market indicator. 

The S&P's market-cap weighting isn't reflecting the strength of IBM, Verizon, Merck and Travelers in its overall return. That arguably puts the Dow in a position of more accurately indicating market breadth beyond a handful of stocks rallying on the promise of AI. 

It may seem old-fashioned to look to the Dow as a market indicator. That makes sense, given the Dow's inclusion of reliable dividend stocks such as Coca-Cola Co. NYSE: KO and 3M Co. NYSE: MMM, with less reliance on fast-moving, younger growth stocks. 

Despite its smaller size compared to the S&P 500, the Dow's 30-stock concentration gives it some value as a  snapshot of traditional blue-chip stock movements.

Dow also tracks market's growth themes

At this juncture, it's not a bad indicator of market health outside of stocks rallying on gains from hot investing themes including AI, cloud computing and anti-obesity drugs. All of those offer a compelling investment thesis, but they represent very select corners of the market. 

That's not to say there aren't stocks in the Dow benefiting from those trends. For example, Apple, which rallied in 2023 despite not being an AI player, is getting new attention for its AI efforts and the launch of its Vision Pro spatial computing headsets. 

Dow components Microsoft and Salesforce Inc. NYSE: CRM have a presence in both AI and cloud computing, and Amgen Inc. NASDAQ: AMGN has been rising due to its applications of AI in the field of drug discovery, as well as its advances in cancer treatments. 

→ Trump won. Buy this coin now. (From Weiss Ratings) (Ad)

Should you invest $1,000 in Alphabet right now?

Before you consider Alphabet, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Alphabet wasn't on the list.

While Alphabet currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

7 Stocks to Own Before the 2024 Election Cover

Looking to avoid the hassle of mudslinging, volatility, and uncertainty? You'd need to be out of the market, which isn’t viable. So where should investors put their money? Find out with this report.

Get This Free Report
Kate Stalter
About The Author

Kate Stalter

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Alphabet (GOOGL)
4.3447 of 5 stars
$171.49+1.5%0.47%22.74Moderate Buy$205.90
Amazon.com (AMZN)
4.9087 of 5 stars
$210.71+1.4%N/A45.12Moderate Buy$236.20
Amgen (AMGN)
4.7915 of 5 stars
$277.86-0.1%3.24%35.58Hold$323.05
Apple (AAPL)
4.7597 of 5 stars
$239.59+1.0%0.42%39.41Moderate Buy$235.68
International Business Machines (IBM)
4.3324 of 5 stars
$227.08-0.1%2.94%33.05Hold$208.12
iShares U.S. Insurance ETF (IAK)N/A$135.88-0.5%1.14%17.19Hold$135.88
Juniper Networks (JNPR)
4.7449 of 5 stars
$35.52-0.3%2.48%46.74Hold$39.50
Microsoft (MSFT)
4.9712 of 5 stars
$430.29-0.2%0.77%35.50Moderate Buy$503.03
Coca-Cola (KO)
4.6663 of 5 stars
$63.36-0.5%3.06%26.18Moderate Buy$72.14
Travelers Companies (TRV)
4.6876 of 5 stars
$261.95-0.6%1.60%13.43Hold$251.15
Verizon Communications (VZ)
4.6445 of 5 stars
$44.05+0.5%6.15%18.99Hold$46.37
NVIDIA (NVDA)
4.953 of 5 stars
$139.16+0.4%0.03%54.77Moderate Buy$164.15
Salesforce (CRM)
4.7085 of 5 stars
$330.00-0.3%0.48%57.39Moderate Buy$345.31
Advanced Micro Devices (AMD)
4.9733 of 5 stars
$141.61-0.3%N/A127.58Moderate Buy$192.79
Meta Platforms (META)
4.1414 of 5 stars
$595.84+0.5%0.34%28.07Moderate Buy$634.71
Merck & Co., Inc. (MRK)
4.9951 of 5 stars
$101.30+0.7%3.04%21.24Moderate Buy$130.86
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

Recent Videos

Super Micro’s Rebound: Can SMCI Stock Rally Another 100%?
Why Meta Is Still a Top Stock Pick for 2025
Why Amazon’s AI Power and Holiday Boost Make This Stock a 2025 Winner

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines