Why One Stock Sent the Dow Lower on Tuesday Morning

Soft inflation data lifted major U.S. stock indexes Tuesday, except for one notable exception: the Dow Jones Industrial Average, the blue-chip index that for many is synonymous with “the stock market.” 

The Dow was down about 0.5% in midday trading, while the S&P 500 and the Nasdaq Composite advanced 0.7% and 1.5%, respectively. 

Health care giant UnitedHealth Group (UNH) was the culprit behind the Dow’s sluggish day. Shares plummeted more than 15% after the company said its CEO would step down for personal reasons, and suspended its full-year guidance, citing unexpectedly high healthcare costs. 

The reason for the divergence in the performance of major indexes lies in the Dow’s peculiar construction. The index, composed of 30 of America’s largest companies, is price-weighted, meaning the stock with the highest share price has the greatest impact on the index’s level throughout the day. On the other hand, the S&P 500 is a capitalization-weighted index in which the companies with the largest market caps have the most influence. 

The two indexes contain the same stocks—granted, there are an extra 470 in the S&P 500—but those stocks have vastly different weights within the indexes. Apple (AAPL), with its $3.1 trillion market cap, is the second-most valuable company in the world, and thus the second-largest stock in the S&P 500. But its share price of about $210 ranked it 16th in the Dow as of Monday’s close. That gives it less sway within the index than companies a fraction of its size, like the Travelers Companies (TRV), with its $268 share price and $60 billion market cap. 

UnitedHealth entered Tuesday with the third-highest share price of any company in the Dow, behind just Goldman Sachs (GS) and Microsoft (MSFT). Thus, UnitedHealth’s slump detracted about 370 points from the Dow in recent trading, accounting for all of its 190-point loss.

Today was the second time in the past month that a sharp drop in UnitedHealth shares single-handedly pulled down the Dow. The stock plunged 22% on April 17, its worst day since 1998, after the company reported weak first-quarter results and cut its full-year profit forecast.