These Big-Name Stocks Aren't Booming

Editor's note: We've written in DailyWealth about the turnaround in tech stocks. But not all parts of the market are in on the surge. In this essay, Pete Carmasino joins us from our corporate affiliate Chaikin Analytics to talk about the underlying health of one major group of companies – and why it's another reason today's investors should be focusing on sector performance...

Not all sectors are created equal.

We tend to ask ourselves what "the stock market" is doing... But the performance of the major indexes doesn't always match up with every individual sector or company. Everything doesn't go up or down at the same time.

Consider the Dow Jones Industrial Average, for example...

This famed index is how most folks check the health of blue-chip companies across various sectors and industries. It tracks 30 of the largest businesses in the U.S. – including UnitedHealth (UNH), Microsoft (MSFT), Goldman Sachs (GS), McDonald's (MCD), and Home Depot (HD).

So far this year, the Dow is lagging the S&P 500 Index. And its underlying health looks underwhelming.

Let's take a closer look at what that means today...

We'll start with the Dow's underperformance in 2023. It's easy to see on a chart...

The Dow is up around 3% in 2023. Meanwhile, the S&P 500 is up about 13% over the same span.

Keep in mind that the Dow only represents 30 companies. It tracks a more specific segment of the market than the S&P 500 – the so-called "blue chips." So it's easier for the Dow to diverge from time to time.

That might seem obvious. But it can lead to a big performance difference if some of those stocks struggle.

Our Power Gauge system at Chaikin Analytics – a tool we use that gathers investment fundamentals into a simple rating – has picked up on this. It's "very bullish" on the S&P 500. But it's less enthusiastic about the blue chips...

While it has turned "bullish" on the Dow, only 10 of the 30 stocks in the index earn a "bullish" or better rating. Most of its holdings are still in "neutral" territory. And several stocks in the Dow are performing poorly today.

For example, Walgreens Boots Alliance (WBA) is down roughly 15% this year. And the Power Gauge is currently "bearish" on the company.

On the flip side, the Nasdaq 100 Index is the real star of 2023...

This index includes 100 of the largest nonfinancial companies on the Nasdaq stock exchange. It's focused on technology, growth, and innovation. So it's a way for us to know how these types of companies are doing at any given time.

As you can see in the following chart, the Nasdaq 100 is crushing the S&P 500. It's up more than 35% this year. Take a look...

We're clearly seeing a big disparity in the stock market this year. And again, it boils down to one thing...

Sector performance.

We live in a world that relies more and more on the latest digital and technological innovations. And the Nasdaq 100's performance shows that investors are buying back into the high-growth potential of these businesses right now.

But the big blue-chip stocks you would expect to soar in a market rally are moving slower.

Investors like us need to keep both these market trends in mind...

As we head into the second half of the year, it's clear that technology is leading the way. And other corners of the market are performing much worse.

It's a simple yet powerful observation. And it will help us pinpoint the most attractive opportunities today.

Good investing,

Pete Carmasino

Editor's note: The man who helped build Wall Street's stock-rating system is coming forward at Chaikin Analytics... to reveal everything you need to know about a powerful tool for everyday investors. This system shows where money is likely to flow next in the markets. It even pointed to the top 10 stocks of 2022 – which would have been enough to turn a $10,000 stake in each of those names into a total $163,000 profit. And it's easy to use... Get the details here.

Further Reading

"Last year's losing sector has become a big winner," Brett Eversole says. Tech stocks have outperformed in 2023. But you haven't missed the boom yet. History tells us we should expect more gains ahead... Learn more here.

"Our system first flipped to a 'bullish' rating on this space in early February," Marc Chaikin writes. At the time, the media narrative was still that tech stocks might not recover for years. But the Power Gauge highlighted the opportunity – along with two major companies leading the way... Read more here.