US Equity Markets: Technology-Driven NASDAQ Composite Outshines Mostly Old-School Dow Jones Industrials

The major U.S. equity indexes closed higher last week, led by impressive performances in the energy and technology sectors. Crude oil posted its first back-to-back weekly gain since February, as evidence showed that U.S. oil companies are cutting production faster than expected and as signs of increased demand emerged with the lifting of coronavirus restrictions by some states.

In the cash market last week, the benchmark S&P 500 Index settled at 2929.80, up 99.09 or +3.50%. The blue chip Dow Jones Industrial Average finished at 24331.32, up 607.63 or +2.56% and the technology-based NASDAQ Composite closed at 9121.32, up 516.37 or +6.00%.

In economic news, the April employment report showed that a record 20.5 million jobs were lost last month, erasing roughly all the jobs that the economy had added in this past decade’s expansion. “The silver lining was that 80% of the job losses were reported as temporary layoffs,” according to Craig Fehr at Edward Jones.

On the charts, the S&P 500 Index has now recovered about 50% of its losses from the record high earlier in the year on hopes that economy activity may be bottoming as lockdowns ease and economies reopen. The NASDAQ Composite is trading higher for the year.

More on the US Jobs Report

The Labor Department reported on Friday that Nonfarm Payrolls fell by 20.5 in April and the unemployment rate rose to 14.7%, both post-World War II records. Economists had been expecting a loss of 21.5 million jobs and the unemployment rate to surge to 16%.

Additionally, the “real’ unemployment rate, which includes workers not looking for jobs and the underemployed, surged to 22.8%.

Average hourly earnings jumped nearly 5% from a year ago, also easily a new record but more reflective of the balance of job losses coming from lower-wage occupations, thus skewing the data.

Note the Breakdown of Unemployment

As expected, the biggest hit to the leisure and hospitality industry, which lost 7.7 million workers, 5.5 million of whom came from eating and drinking establishments.

Education and health services lost 2.5 million, while professional and business services as well as retail both saw 2.1 million workers lose their jobs. The overall unemployment rate for service occupations ballooned from 4% in March to 27.1%.

Manufacturing and “other services” dropped by 1.1 million apiece and government fell by 980,000. Construction dropped 975,000 and transportation and warehousing fell by 584,000.

Why is the NASDAQ Composite Outperforming the Dow?

Last week, the NASDAQ turned higher for the year, while the Dow is still struggling at 50% of the entire break from its all-time high. The price action reflects the way investors are viewing the “new” economy after the coronavirus pandemic. Clearly, investors are betting on technology.

The NASDAQ is a stock index consisting of more than 3000 companies whereas DJIA consists of only 30 major companies traded on the NYSE and NASDAQ.

NASDAQ mainly comprises of companies in the technology sector or the companies in the growth stages while Dow Jones is more about the stock price and is hence dependent on the earnings.

Volatility in the case of the Dow is low because it consists of the top 30 companies by sector and hence these blue-chip companies contribute low volatility whereas, for instance, the NASDAQ-100 is more volatile as compared to the Dow Jones because of the high risk and growth-oriented companies (the tech giants).

The performance of NASDAQ mainly depends on how the technology stocks are faring but in the case of the Dow Jones it is about the 30 companies together and not any company individually.