The Dow Jones Industrial Average Is Hitting a New High. Why Tech Stocks Are Getting Crushed.

Markets Now Down

The Dow Jones Industrial Average surged to a record high on Monday, but the tech-heavy Nasdaq Composite is getting hit. Blame it on growth expectations, which currently favor economically-sensitive stocks.

The Dow and the Nasdaq are moving in opposite directions Monday, with the Dow up 0.6% and the Nasdaq down 1.6%. The S&P 500 is off 0.1%. That continues a trend that began toward the end of last month, with the Dow up 2.9% since April 26, while the Nasdaq has fallen 4% since then.

Blame it on the economy. Economic growth is surging—U.S. GDP grew at a 6.4% clip during the first quarter of 2021—and demand should continue to recover, Friday’s disappointing jobs report notwithstanding. That economic strength is giving a big boost to corporate earnings, which are expected to grow at a 34% clip in 2021. But it will provide an even bigger boost for value stocks, which are reliant on a strong economy, than growth stocks, which generally have their own idiosyncratic trajectories. Aggregate earnings growth estimates for the next year on the Russell 1000 Value Index are now 4 percentage points above those for the Russell 1000 Growth index, according to Wells Fargo data.

That’s highly unusual—and it’s made value shares more attractive to investors. Unfortunately, many have spent the last 10 years buying little but growth stocks, particularly those in the tech sector. That means investors need to fund their purchases either with new cash or by dumping growth stocks. Fund managers, however, are currently holding 4.1% of their portfolios in cash, on average, according to Bank of America data, in line with the historical average. “Low cash holdings are “definitely a part of [the tech selling],” says Arthur Weise, chief investment officer of Kingsland Growth Advisors. “[You’ve] got to sell growth to buy value.”

And that’s what investors look to be doing on Monday. The Technology Select Sector SPDR ETF has dropped 1.6%, while Tesla (TSLA) has tumbled 5.2%, Facebook (FB) has fallen 3.7%, and Nvidia (NVDA) has declined 2.9%. Meanwhile, the ARK Innovation ETF (ARKK), home to many formerly highflying, expensive growth stocks, has dropped 44%.

From the looks of it, the value trade just isn’t over yet.

Write to Jacob Sonenshine at


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