The Dow Jones Industrial Average (DJIA) tends to hold its own a bit better than the S&P 500 and a lot better than the Nasdaq 100 when the stock market flirts with bear market territory. Indeed, the DJIA (or the Dow) may not be a favorite way to track the broad stock market, given that it represents a rather small sample size, with the index comprised of just 30 stocks. However, the 30 stocks are some very well-established large-cap blue chips.
Key Points
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If you’re not ready to jump into the deep end of the stock market waters quite yet, the DIA, which has held up better on the way down, looks interesting.
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The DIA has a higher dividend, a lower beta, and less tech exposure than the S&P 500. It could be a less-horrifying way to buy the dip.
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And many of them don’t tend to boast outlandish valuations, like the high-multiple names you’d find within the Nasdaq 100 or S&P 500. While the Dow may be perceived as more of a value-rich index, I would caution investors from buying into the fund if they’re looking for downside protection. Indeed, a rotation from growth to large-cap value may benefit the Dow over the S&P 500 and Nasdaq 100, but there are better ways to bet on the “large value” factor if you’re looking to play a rotation or lessen downside risk in the current bear market.
The Dow has avoided falling into a bear market (at least for now)
As things stand today, the Dow avoided falling into a bear market, collapsing by close to 17% at its worst moment. After some incredibly choppy up and down moves, the Dow is down just north of 13% from its all-time high. The SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA), which is a go-to way to bet on the Dow, could be an interesting buy for investors who want to buy the dip in the U.S. markets, but doesn’t want to be in harm’s way should tech continue to amplify daily moves made by the S&P 500.
Sure, the DIA ETF won’t be everyone’s first pick for buying the latest market dip. That said, if you’re a fan of the 30 names (and their weightings, which is based on the share price of a holding, rather than its market cap), the lower 0.89 beta, and the slightly higher 1.59% dividend yield, I think the DIA could prove a wise buy on the way down.
Perhaps the biggest reason to opt for the DIA versus the more popular S&P 500 or Nasdaq 100 is for investors who don’t want as much exposure to the tech sector. Indeed, the magnificent multi-year ascent in the Magnificent Seven and other tech names has caused the S&P 500 to be front-heavy and tech-heavy, with the tech sector comprising close to a third of the index before the Trump correction began.
The Dow’s limited tech exposure has helped the DIA hold up better than the S&P 500
Now, the DIA still has a decent amount of tech exposure, with a weight just south of 19%, second only to financials, which make up close to 25% of the index. Arguably, the tech exposure is “just right” for many investors who want better sector diversification than what the more popular S&P 500 has to offer. Sure, it’s an incredibly unpopular opinion to favor the Dow over the S&P 500. Indeed, 30 stocks just isn’t a good reflection of the broad market.
And while the Dow isn’t the best index in the world to track markets, I’d argue that the 30 names within the index are good enough to form a well-diversified portfolio for the average investor. Arguably, the Dow is better diversified across sectors for those willing to go out of their way to avoid tech-heaviness. And it’s certainly far easier for self-guided investors to track (30 stocks over 500) over time.
The bottom line
Sure, the Dow’s year-to-date outperformance against the S&P 500 (DIA is down 7.5% year to date versus the S&P 500, which is down 10%) may not last if tariffs are replaced with newly inked trade deals in short order and investors return to risk-on mode. However, I do think the DIA has what it takes to keep outperforming the S&P 500 as investors remain in risk-off mode amid Trump tariff-related uncertainty.