That old Sesame Street song is a lot like the stock market. One of these things is different from the others. Recently, both the S&P 500 and the Nasdaq Composite have been setting new records. On Monday, they did it again. However, the Dow Jones Industrial Average has not changed.
The Dow hit a high point of over 40,000 and closed above that mark on May 17. But the index of 30 industrials has gone down about 3% since then.
So far this month, 17 Dow components have gone down, showing that the drop is broad. So why has the Dow stopped going up while the other major market indexes keep going up? People who don’t have money in funds that are tied to the Dow find the difference almost funny.
The difference can be explained by the Dow’s unique price-weighted method. The S&P 500 and Nasdaq, on the other hand, are both market-cap weighted. Besides that, the Dow is mostly made up of rate-sensitive financial stocks that have dropped along with long-term bond yields.
With a drop of almost 5%, American Express stock is the second worst performer in the Dow in June. It’s the sixth and seventh worst time to buy shares of JPMorgan Chase and Travelers. This month, Goldman Sachs Group stock has also gone down.
Financials aren’t the only Dow stocks that are having a hard time, though. Other businesses in more value-oriented and cyclical fields have also been hurt. In June, Chevron is the worst Dow stock. Aside from that, Disney, Caterpillar, and Verizon stocks are also dragging down the index.
The Dow, on the other hand, has mostly tech companies that have done very well. This week, shares of Apple, Microsoft, and Amazon.com have done very well. But these are also the big stocks that are pushing up the S&P 500 and Nasdaq…They don’t have as much of an effect on the daily changes of the Dow, which is affected by the prices of the stocks that make up its parts.
Oh yes, Microsoft does have the third most important price weighting. But Apple and Amazon are only the 11th and 15th biggest parts of the Dow.
That means that their big gains this month aren’t enough to make up for the fact that almost two-thirds of the Dow components have gone down in June. This includes Goldman, Caterpillar, Amgen, and McDonald’s, which are all heavily weighted Dow stocks.
He told Barron’s, “There has been a narrow surge.” Phil Orlando is the chief equity strategist at Federated Hermes. And he said, “The market may be reaching a point where the rally should broaden out.” But he also said, “Many large-cap value stocks have been left for dead.”
This trend might keep going. A lot of investors still seem to love large-cap growth stocks the most.
According to Barron’s, Sinead Colton Grant, chief investment officer at BNY Wealth (formerly known as BNY Mellon Wealth), likes large-cap growth sectors like technology and communications services because they are constantly coming up with new ideas, have low levels of debt, and make a lot of cash flow.
That should make them not worry about the Fed possibly keeping interest rates the same until at least December. Colton Grant also said that more gains should come from fair prices and strong earnings growth.
She said that the S&P 500 had already topped her company’s goal of 5,400 for the end of the year, but it could go even higher if there isn’t a recession and big tech keeps making strong sales and earnings gains.
When asked by Barron’s, Colin Graham, head of multi asset strategies at Robeco, said, “It’s all about momentum in tech stocks.”
He said that tech companies other than the Dow’s top three are also surprising Wall Street with AI news and high hopes for success. Examples include Nvidia, Oracle, Adobe, and others. “Tech is bringing in money.” He also said, “This should be a good year as long as they keep doing that.”
That is great news for people who invest. Just don’t expect the Dow to show that any time soon because of how it’s put together and how little it still has in top tech stocks compared to the S&P 500 and Nasdaq.
