The opportunity of the Dow’s underperformance

June 28, 20212 Comments

The Dow Jones Industrial Average (INDU), which consists of 30 stocks, has been underperforming the S&P 500 of late. The chart below illustrates this phenomenon: The red line is the SPX, while the black line is the INDU. A question you might ask regarding this observation:  Is there opportunity in this divergent behavior between the indices? Lets find out!

The Dow is heavily weighted between 5 sectors. Rounded off – These are Technology (21%), Financials (19%), Health Care (17%), Cyclical (15%), Industrials (19%). Ironically, the index is named after the industrials, but the index itself is not so overweight industrials. Go figure. The recent underperformance comes from banks and cyclicals. Plus, a few of the significantly weighted stocks in various sectors.




US Banks (19% of INDU)

Goldman Sachs is 5% of the DJIA index. Note the underperformance over the last month.

The banks in general, illustrated by the BMO equal weighted US bank index ETF below, are suffering quite a bit of late. Financials represent 19% of the INDU.

Cyclicals (materials, energy, commodities: 15% of DJIA)

After their big rise, we are seeing the commodity stocks pull back lately – which total 15% of the INDU. Metals and energy are the big boys in that sector. The BMO metals ETF illustrates this pullback (disclose: we hold a position in our Equity Platforms)




The energy sector, while not pulling back, is no longer putting in new highs. The Vanguard Energy ETF illustrates this pattern.

Individual stocks with big weightings in the INDU

Individual stocks with big INDU weightings

UNH represents about 8% of the Dow. That’s a lot for one stock. Its been trending down of late.


HD represents near 7% of the Dow. Downright ugly, this one, and its 7% weighting adds to the pain.

Why the SPX is outperforming the DJIA (and the broader NYSE)

Same old story folks – exactly what happened in the first half of 2020. Technology. The SPX is some 28% of the stuff (14% Healthcare, 13% Consumer Discretionary). And technology has been leading the charge over the past month. That, plus Healthcare, which is the second biggest component. Here’s the iShares Global Healthcare ETF:

Here’s the SPDR tech ETF:


Where the opportunity lies

OK – that’s great, Keith. You told us where the money is going and why the SPX is doing so well on a relative basis. So…..should we jump into technology and healthcare – or just buy an SPX index ETF?

My answer to that question might be to direct you waaaay back to the top chart. Do you see the relative strength study in the pane under the SPX and INDU price charts? Take note of the period early this year when the INDU underperformed. Notice how it rose super strongly after that point? Another period like that was in the summer of 2020 (not shown on this chart). The INDU relative strength fell below the “0” line and stayed for a while. Guess what happened? The INDU and value type stocks took off that fall–just like they did into the spring of this year.

My conclusion to this observation of INDU underperformance might be:

  • We will see a bit of outperformance continue for the SPX (and the big sectors comprising it) for a short while, despite the tendency of seasonality trends for those very sectors to NOT do well in the summer.
  • But, that strength may not last … and this should lead into another strong move by the INDU (relative performance wise) and a resurgence of the underperforming sectors noted above. Namely, banks and cyclicals.
  • So- short term, it looks like Technology and Healthcare may lead the charge. But keep your eyes open for a rotation back to value. That’s what happened the last two times the comparative relative strength by the INDU got so low.








  • The Nat gas stocks have been on a terror lately, particularly Tourmaline. Do you expect Nat gas to continue its run. Oil seems to be settling down.

    • Disclosure–we own TOU. Nat gas and TOU is coming to its old highs….will it break that resistance – aka both the commodity and related stocks? – I guess we shall see. My view is it may pause. Longer termed, I am bullish energy. So, we will hold.


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