Dow Jones lags behind S&P 500 and Nasdaq, potential rally in value stocks
From Nasdaq: 2025-01-14 08:00:00
In 2024, the Dow Jones lagged behind the S&P 500 and Nasdaq, with only a 13.1% gain compared to 23.7% and 30.1%, respectively. The Dow continues to trail in 2025, up just 0.2% compared to 0.6% and 0.9% for the S&P 500 and Nasdaq as of Jan. 9, 2025.
The Dow Jones has struggled due to the Fed’s dovish stance favoring growth stocks on the Nasdaq. The value stocks in the Dow perform better in high-rate environments, giving hope for a potential rally in the coming days.
The S&P 500 and Nasdaq have been driven by the growth of key stocks like NVIDIA, Amazon, Microsoft, Apple, Meta, Alphabet, and Tesla. The outperformance of these stocks has been crucial for the recent rally in both indices.
In 2025, the potential return of Trump’s protectionist policies could impact global trade and inflation, leading to changes in Fed policy. This could result in a shift towards a more hawkish stance, affecting interest rate cuts and inflation expectations.
Despite recent interest rate cuts, Fed Governor Michelle Bowman suggests that further cuts may be limited due to upside risks to inflation. This hints at a possible high-rate environment, which typically benefits value stocks like those in the Dow Jones.
With a P/E ratio of 26.80X, the Dow Jones is moderately valued compared to the S&P 500 and Nasdaq. This valuation, along with other factors, may support a more favorable performance for the Dow in the near future.
Investors can find opportunities in the Dow Jones through ETFs like SPDR Dow Jones Industrial Average (DIA) and iShares Dow Jones U.S. ETF (IYY). DIA offers exposure to a diversified portfolio of 30 blue-chip stocks across various sectors.
The future performance of the Dow Jones may face challenges related to geopolitical risks, financial sector exposure, and the absence of key tech stocks like Tesla and Alphabet in its component list. Investors should monitor these factors for potential impacts on the index.
Read more at Nasdaq: Can Dow Jones ETFs Fare Better in New Year Than 2024?