The Dow Jones Industrial Average (^DJI +0.02%) tracks 30 large U.S. stocks. Inclusion is limited to companies that have excellent reputations, demonstrate sustained growth, and generate widespread interest among investors. To that end, the index is commonly regarded as a collection of blue chip stocks, though it also serves as one of three major barometers for the overall U.S. stock market, with the other two being the S&P 500 (^GSPC +0.84%) and the Nasdaq Composite (^IXIC +1.71%).
The Dow Jones traded sideways through the first 10 months of the year, but the index has soared 12% since the end of October on particularly strong momentum in four stocks: Apple (AAPL +2.08%), Intel (INTC +13.79%), Microsoft (MSFT 1.33%), and Salesforce (CRM 2.43%). The upshot of that momentum is that the Dow Jones reached a record high on Wednesday, meaning the blue chip index just entered bull market territory.
Past performance is never a guarantee of future returns, but crossing the bull market threshold has historically been a good sign for stocks.
History says the Dow Jones is headed much higher
The Dow Jones has run through eight bull markets in the last 50 years. The average one lasted about five years and saw the index climb 172%. But returns varied substantially between individual bull markets, as detailed in the table below:
|
Bull Market Start |
Dow Jones Return |
|---|---|
|
December 1974 |
76% |
|
February 1979 |
38% |
|
August 1982 |
250% |
|
October 1987 |
73% |
|
October 1990 |
396% |
|
October 2002 |
94% |
|
March 2009 |
348% |
|
March 2020 |
98% |
|
Average |
172% |
Data source: YCharts. Chart by author.
Here's the upshot: If the new bull market aligns with the historical average, the Dow Jones will increase 172% over a five-year period. But the current bull market technically started when the Dow Jones bottomed in October 2022. The index has since climbed about 27%, bringing the implied upside down to roughly 110% over four years from today's levels.
However, returns have varied dramatically between past bull markets, so investors would do better to benchmark against a different metric. Specifically, the Dow Jones returned about 9% annually over the past four decades, and its performance will likely be similar over the next four decades.
Investors looking to capitalize on that should consider buying some of the more promising blue chip stocks in the Dow Jones. For instance, Salesforce and Microsoft have strong market positions and solid growth prospects that could unlock plenty of value for patient shareholders.
Salesforce has been the leader in customer relationship management (CRM) software for 10 consecutive years, and the CRM market is forecast to grow by 14% annually through 2030. Similarly, Microsoft is the leader in enterprise software-as-a-service and operates the second-largest cloud computing platform; those markets are also projected to grow by 14% annually through the end of the decade.
Building on that, Salesforce and Microsoft are leaning into the growing demand for artificial intelligence (AI). In fact, Morgan Stanley analyst Keith Weiss argues Microsoft in particular is the software company best positioned to monetize generative AI. But both could be long-term winners as more businesses seek productivity gains through automation.
An index fund stacked with blue chip stocks
Alternatively, investors could take a more conservative approach and buy shares of the SPDR Dow Jones Industrial Average ETF (DIA +0.04%).
The SPDR Dow Jones Industrial Average ETF is an index fund that tracks all 30 blue chip stocks in the Dow Jones, meaning it provides exposure to some of the most economically influential U.S. companies. The five largest holdings in the fund are detailed below:
- UnitedHealth Group: 9.4%
- Microsoft: 6.7%
- Goldman Sachs Group: 6.4%
- Home Depot: 5.9%
- McDonald's: 5.2%
At recent prices, the SPDR Dow Jones Industrial Average ETF returned 473% over the last two decades, or 9.1% annually. Additionally, it was slightly less volatile than the broader S&P 500, as evidenced by its 10-year beta of 0.95. The index fund bears a below-average expense ratio of 0.16%, meaning the annual fee on a $10,000 portfolio would be $16.
Here's the bottom line: The Dow Jones has consistently created wealth over long periods of time, and I'd bet my bottom dollar that trend continues in the future. Patient investors looking to capitalize on that upward momentum can purchase shares of individual stocks like Microsoft or Salesforce, or they can purchase shares of the SPDR Dow Jones Industrial Average ETF to spread capital across the entire blue chip index.
