One Stock Is Behind the Dow's Steep Drop Tuesday. Here's Why—and Which Stock

• The Dow Jones Industrial Average was down nearly 1% on Tuesday afternoon, dragged down by slumping UnitedHealth Group stock.

• UnitedHealth, one of the priciest stocks in the blue-chip Dow, tumbled nearly 20% Tuesday after reporting disappointing earnings.

The Dow Jones Industrial Average is missing out on a rally today thanks in large part to one very influential stock.

The Dow was down nearly 1% in recent trading. Meanwhile, the S&P 500 and Nasdaq were up 0.4% and 0.9%, respectively, boosted by rising chip stocks and other AI infrastructure providers. But it wasn’t just roaring AI stocks lifting those indexes: The 30-component Dow was being dragged down Tuesday.

A familiar culprit was to blame.

The Dow Jones Industrial Average is one of the most widely-followed measures of stock market performance. Its price-weighted methodology makes it an idiosyncratic gauge that can diverge sharply from the other major indexes due to big single-stock moves.

Shares of UnitedHealth Group (UNH) tumbled nearly 20% after getting hit with a double-whammy. Late Monday, Medicare administrators said payments to private Medicare Advantage plans will barely increase next year; this morning UnitedHealth forecast total revenue will decline this year as it scales back operations.

UnitedHealth’s slump was bad news for the price-weighted Dow, in which stocks with the highest nominal stock prices have the most impact on the index’s performance. By contrast, the capitalization-weighted S&P 500 and Nasdaq are more influenced by the companies with the largest market values.

With a stock price of $351.64, UnitedHealth Group was the sixth-most expensive stock in the Dow, and thus the price-weighted index’s sixth-most influential component heading into Tuesday.

Granted, the Dow wasn’t being helped by its most influential component, Goldman Sachs (GS), shares of which were recently down more than 1% at about $920. Shares of Home Depot (HD) and American Express (AXP), two other companies with larger Dow weightings than UnitedHealth, were also down more than 1%.

A similar dynamic played out several times in last year, with UnitedHealth’s financial woes occasionally single-handedly tanking one of the most widely-cited gauges of stock market performance.

Read the original article on Investopedia