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It doesn’t get as much investor attention as the broad S&P 500 index SPX, +1.41% or the sexy innovators of the Nasdaq Composite COMP, +2.62%, but a closer look at the Dow Jones Industrial Average DJIA, +0.96% is a good reminder that the cyclical trade is what’s moving markets in 2021 — and why that matters.
That idea comes from an analysis from DataTrek Research, published Thursday. Co-founder Jessica Rabe notes that just six of the Dow’s 30 holdings are responsible for its year-to-date gains. As of the close of business Wednesday and adjusted for rounding, they are:
| Goldman Sachs Group Inc. GS, +0.43% | 610 points, 36% of the YTD point gains |
| Caterpillar Inc. CAT, -0.37% | 283 points, 17% of the YTD point gains |
| Chevron Corp. CVX, -0.07% | 209 points, 12% of the YTD point gains |
| Boeing Co. BA, +2.36% | 202 points, 12% of the YTD point gains |
| JPMorgan Chase & Co. JPM, -0.07% | 201 points, 12% of the YTD point gains |
| American Express AXP, +0.32% | 185 points, 11% of the YTD point gains |
| Source: DataTrek Research |
What does the performance of what Rabe calls “old school, mostly ‘industrial’” stocks tell us? “They all continue to reflect confidence in reopening trades and a steepening yield curve. We remain bullish on Energy XLE, +0.36%, Financials XLF, +0.02% and Industrials XLI, +0.40%, ” she wrote.
Of course, the blue-chip Dow isn’t only made up of industrials, despite its name. Apple Inc. AAPL, +1.65% and Salesforce CRM, +2.36% are in the index too – and are among its worst performers in the year to date, down 9.4% and 4.8%, respectively, through March 10.
“Still, the rotation into cyclicals and out of tech has been far more helpful than harmful to the Dow’s returns,” Rabe wrote. “Despite that a third of Dow names are in the red [year to date], they only account for a collective loss of 493 points to the index, or still less than Goldman Sachs’ 610 positive point contribution YTD.”
Why should investors focus on this quirky small collection of price-weighted stocks? “It is still the way most Americans track the domestic stock market,” Rabe wrote. “There are far more Google searches every day for ‘Dow Jones’ than ‘S&P 500’ or ‘stock market.’”
To whatever extent “Main Street” feels good – and goes out and spends – when “Wall Street” is doing well, it’s the performance of the Dow that triggers that, she added.
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