The stodgy Dow Jones Industrial Average has proven a place of relative safety for stock investors as US equities stumble into 2022.
The index stuffed with old timers from Goldman Sachs Group Inc. to Caterpillar Inc. has fallen 1.6% so far this year, including a 1.4% drop during Monday’s market-wide slide. That compares to a rout of 6.4% in the tech-heavy Nasdaq 100 since the start of the year, giving the blue-chip index its biggest outperformance since the first week of 1996.
The backdrop is a Federal Reserve that could commence a series of rate hikes as soon as March, just one of several steps the central bank is set to take in tightening monetary policy to combat inflation. In the stock market, that means tech is out and old-school blue chips like oil producers are in.
“As we see expectations for rate hikes ramp up, we can expect value stocks looking more attractive, while the high-growth area of the market — such as the tech stocks, the Nasdaq — are going to be losing their shine,” Fiona Cincotta, senior financial markets analyst at City Index, said by phone.
Rising rates — an upshot of strong economic growth — drive investors toward value stocks, which tend to be more cyclical and offer near-term cash flows. Growth shares, on the other hand, lose their luster in this environment.
The Nasdaq 100 was down for a fifth straight day on Monday, underperforming the broader market again.
“We would suggest that investors consider being proactive and aggressive with inflation and not fear it, and to reposition portfolios into more cyclical stocks that tend to do well in inflationary environments,” said Greg Bassuk, chief executive of AXS Investments, by phone.