Were They Up or Down?

Did you know that more stocks were up today than down?

I’m not saying the price action was good, but it was probably better than most think.

And that’s because the indexes are so concentrated that a small handful of stocks drive the action and mask what’s happening beneath the surface.

Which brings me to another point: how you do on days like today is all about what you own.

In other words, does your portfolio look a lot like the S&P 500 or Nasdaq 100, dominated by big tech stocks?

I think this is the case for most investors, as they’ve had success hanging out in large-cap leaders or trusted passive vehicles cycle after cycle. 

Those growth investors had a rough day today.

But then we have the dividend investors and value folks, and their portfolios can look quite different. Financials and industrials performed well today. They were both green. And how about the rally in Real Estate? 

Investors who are overweight these groups barely felt today’s sell-off.

So, how you perform during a corrective wave for the broader market is going to be a function of how much your portfolio looks like it…

If the S&P 500 is correcting or moving lower, as it was today, other areas of the market could still do fine… and so could you.

I think the Dow Jones Industrial Average is a great barometer for everything that isn’t growth in the large-cap world.

Amazingly, the index looks more like small-caps than large-caps at times, but it’s really just a value vs growth story when compared to the S&P or NDX.

Here’s the Dow vs S&P ratio showing almost 20 years of steady underperformance from the value-heavy index as growth has dominated in recent history:

But there’s never been a more logical time and place for this relative trend to stop and reverse.

The DJI/SPX ratio is rebounding off a shelf of support at its record lows as downside momentum wanes.

Could you imagine a world where the Dow is actually the better place to be—and investors are rewarded for having a portfolio with more value than growth for a change?

As hard as it is to believe at this point, this was commonly the case back during the 80s, 90s, and even 2000s. 

So I don’t think it would be a bearish signal for the broader market or anything like that. That’s not the right takeaway for a ratio like this. Just recently, in 2016 and 2017, the Dow led during a historic bull market period. It could happen again.

The real information in this ratio is about what stocks to own.

Should I keep leaning into growth?

Or is it finally time to own more value?

If we’re in for more days like today in the future, we’re all going to want to own more value. Despite the big sell-off for growth stocks, the Dow made a new all-time high intraday and managed to close positive. 

Here it is threatening to break out of a consolidation that dates back to last year:

If the Dow is going to start outperforming the S&P and that ratio is going to dig in at multi-decade support, I suspect DJI is sticking this breakout on an absolute basis.

And if those two things are happening, I think it would be prudent to plan for more and more days like today…. And to buy some value stocks to make the most of it.

Wouldn’t it just make sense for banks and cyclical stocks to take the leadership reins during an AI-fueled bull market?

It wouldn’t. But it doesn’t have to.

I’m staying open-minded. 

A big breakout in the Dow here could signal a regime shift in the relative trend that favors value.

Steve