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Sticky inflation and strong jobs data have revived Fed rate-hike concerns, pressuring growth stocks.
The Dow's lower tech exposure may help it outperform the Nasdaq if rate worries persist.
Strength in healthcare and financial stocks could provide additional support to Dow Jones ETFs.
Wall Street witnessed a rout last week due to growing fears of rising rates. The tech-heavy NASDAQ 100 Index lost 4.5% last week, the S&P 500 slumped 2.6%, the Dow Jones slipped 0.3% and the Russell 2000 retreated over 2.9%.
Nonfarm payrolls jumped a seasonally adjusted 172,000 in May, down slightly from the upwardly revised 179,000 in April and way higher than the Dow Jones consensus estimate of 80,000, as quoted on CNBC. Such a hot jobs report along with higher inflation fueled Fed rate hike bets.
Chip stocks – which fall in the category of growth investing – were hammered on June 5, 2026, with the semiconductor sector suffering its steepest decline since April 2025, as quoted on Yahoo Finance. The slump has erased more than $1 trillion in market value as investors rapidly unwind positions tied to the AI boom.
Against this backdrop, the Dow Jones should perform better than the S&P 500 and the Nasdaq. Let’s tell you why.
Fed Policy Tightening in the Cards?
The Personal Consumption Expenditures (PCE) Index, the central bank's preferred inflation gauge, rose 3.8% year over year in April, up from 3.5% in March and marking the highest reading in three years. Core PCE, which excludes food and energy prices, accelerated to 3.3% from 3.2%, signaling that underlying inflation pressures remain elevated.
As inflation reaches its highest level in three years and the Iran conflict continues, Federal Reserve officials are watching closely to see whether rising prices become persistent enough to require interest rate hikes instead of keeping rates unchanged, as quoted on Yahoo Finance.
Several Fed officials emphasized concerns about inflation becoming embedded in the broader economy. Federal Reserve Governor Lisa Cook said she is monitoring whether businesses pass higher energy costs on to consumers and whether workers demand higher wages in response.
While her base case remains that inflation will moderate without additional tightening, she noted that she is prepared to support rate hikes if inflation fails to decline in a timely manner.
Why Dow Jones May Be Better-Positioned Than Nasdaq?
The Nasdaq is more tech-oriented, which means it is tilted toward growth stocks in nature. Growth stocks underperform in a rising-rate environment as their valuations depend on future earnings. The S&P 500 ranks second on this criterion, and among the big three, the Dow Jones is more value-focused. Value stocks fare better in a rising-rate backdrop.
Information technology takes up about 20% of the portfolio, while the S&P 500 allocates about 35% to the sector, and the Nasdaq-100 comprises about 65% of the portfolio. The AI space within the broader tech sector, in any case, comes under pressure occasionally due to bubble concerns. Analysts are divided in their opinions about AI overvaluation, as mentioned on a CNBC article.
Since the Dow Jones has less tech exposure than the other two big peers, AI valuations are likely to bother the Dow Jones to a lesser extent.
Healthcare Sector Gaining Prominence
The healthcare sector has received a boost lately as investors have rotated to non-cyclical and lower-valuation sectors for diversification from the tech space. Note that Health Care Select Sector SPDR Fund (XLV - Free Report) has gained about 5.3% over the past month (as of June 5, 2026) against only 0.5% uptick in State Street SPDR S&P 500 ETF Trust (SPY - Free Report) .
The healthcare sector has about 13% exposure to the fund DIA. Most importantly, UnitedHealth Group Inc. (UNH - Free Report) has added about 8.8% over the past month (as of June 5, 2026). UNH stock is likely to see gains on successful strategy shift, per Bank of America, as quoted on CNBC.
At the time of writing, UnitedHealth Group currently has an average brokerage recommendation (ABR) of 1.54 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 27 brokerage firms. The presence of UNH in the Dow’s kitty is a plus at the current level.
Financials to Flex Muscles?
The Dow Jones’ potential rally could be backed by strength in the banking and financial stocks. Note that State Street Financial Select Sector SPDR ETF (XLF - Free Report) has added about 2% last week against a slump in the broader market. Investors probably shifted toward value sectors and tended to move away from tech overvaluations. Financial stocks command about 28% of the Dow Jones.
Bottom Line
So, overall, the Dow Jones’ performance should be good in the near term, if not great. Its limited focus on tech stocks may now favor the index, as long as rising rate concerns flare up. Investors can keep a close tab on the State Street SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) and the ProShares Ultra Dow30 (DDM). However, if the Fed starts cutting rates again, the Nasdaq may again flex its muscles, put aside AI bubble fears and outsmart the Dow Jones.
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Dow Jones ETFs: Better Than S&P 500 & Nasdaq Now?
Key Takeaways
Wall Street witnessed a rout last week due to growing fears of rising rates. The tech-heavy NASDAQ 100 Index lost 4.5% last week, the S&P 500 slumped 2.6%, the Dow Jones slipped 0.3% and the Russell 2000 retreated over 2.9%.
Nonfarm payrolls jumped a seasonally adjusted 172,000 in May, down slightly from the upwardly revised 179,000 in April and way higher than the Dow Jones consensus estimate of 80,000, as quoted on CNBC. Such a hot jobs report along with higher inflation fueled Fed rate hike bets.
Chip stocks – which fall in the category of growth investing – were hammered on June 5, 2026, with the semiconductor sector suffering its steepest decline since April 2025, as quoted on Yahoo Finance. The slump has erased more than $1 trillion in market value as investors rapidly unwind positions tied to the AI boom.
Against this backdrop, the Dow Jones should perform better than the S&P 500 and the Nasdaq. Let’s tell you why.
Fed Policy Tightening in the Cards?
The Personal Consumption Expenditures (PCE) Index, the central bank's preferred inflation gauge, rose 3.8% year over year in April, up from 3.5% in March and marking the highest reading in three years. Core PCE, which excludes food and energy prices, accelerated to 3.3% from 3.2%, signaling that underlying inflation pressures remain elevated.
As inflation reaches its highest level in three years and the Iran conflict continues, Federal Reserve officials are watching closely to see whether rising prices become persistent enough to require interest rate hikes instead of keeping rates unchanged, as quoted on Yahoo Finance.
Several Fed officials emphasized concerns about inflation becoming embedded in the broader economy. Federal Reserve Governor Lisa Cook said she is monitoring whether businesses pass higher energy costs on to consumers and whether workers demand higher wages in response.
While her base case remains that inflation will moderate without additional tightening, she noted that she is prepared to support rate hikes if inflation fails to decline in a timely manner.
Why Dow Jones May Be Better-Positioned Than Nasdaq?
The Nasdaq is more tech-oriented, which means it is tilted toward growth stocks in nature. Growth stocks underperform in a rising-rate environment as their valuations depend on future earnings. The S&P 500 ranks second on this criterion, and among the big three, the Dow Jones is more value-focused. Value stocks fare better in a rising-rate backdrop.
Information technology takes up about 20% of the portfolio, while the S&P 500 allocates about 35% to the sector, and the Nasdaq-100 comprises about 65% of the portfolio. The AI space within the broader tech sector, in any case, comes under pressure occasionally due to bubble concerns. Analysts are divided in their opinions about AI overvaluation, as mentioned on a CNBC article.
Since the Dow Jones has less tech exposure than the other two big peers, AI valuations are likely to bother the Dow Jones to a lesser extent.
Healthcare Sector Gaining Prominence
The healthcare sector has received a boost lately as investors have rotated to non-cyclical and lower-valuation sectors for diversification from the tech space. Note that Health Care Select Sector SPDR Fund (XLV - Free Report) has gained about 5.3% over the past month (as of June 5, 2026) against only 0.5% uptick in State Street SPDR S&P 500 ETF Trust (SPY - Free Report) .
The healthcare sector has about 13% exposure to the fund DIA. Most importantly, UnitedHealth Group Inc. (UNH - Free Report) has added about 8.8% over the past month (as of June 5, 2026). UNH stock is likely to see gains on successful strategy shift, per Bank of America, as quoted on CNBC.
At the time of writing, UnitedHealth Group currently has an average brokerage recommendation (ABR) of 1.54 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 27 brokerage firms. The presence of UNH in the Dow’s kitty is a plus at the current level.
Financials to Flex Muscles?
The Dow Jones’ potential rally could be backed by strength in the banking and financial stocks. Note that State Street Financial Select Sector SPDR ETF (XLF - Free Report) has added about 2% last week against a slump in the broader market. Investors probably shifted toward value sectors and tended to move away from tech overvaluations. Financial stocks command about 28% of the Dow Jones.
Bottom Line
So, overall, the Dow Jones’ performance should be good in the near term, if not great. Its limited focus on tech stocks may now favor the index, as long as rising rate concerns flare up. Investors can keep a close tab on the State Street SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) and the ProShares Ultra Dow30 (DDM). However, if the Fed starts cutting rates again, the Nasdaq may again flex its muscles, put aside AI bubble fears and outsmart the Dow Jones.