The Dow Jones Industrial Average (DJIA) quietly passed the 50,000 mark for the very first time—an occasion that warrants donning the “Dow 50,000” hat. Of course, the party was quick to end, with the Dow plunging a few hundred points in the sessions that followed.
Undoubtedly, it may not take all too long before the Dow is back up above the level. But for now, it feels like markets are already in a full-blown correction. With investors pivoting away from the AI disruptors (think the Mag Seven stocks) and the disrupted (software companies) and towards real, cash-flow-generative assets, the Dow might just be able to move on without so much help from the S&P 500 or Nasdaq 100.
Whenever the Dow is down by the slightest margin while the S&P 500 is off over 2% and the Nasdaq 100 is already halfway to a correction, odds are there’s a rotation in play. With big tech earnings season sparking a new wave of CapEx fears, questions linger as to whether it’s time to rotate into something else while the biggest tech stars take their breather for who knows how long.
The Dow’s relative strength amid a value rotation is noteworthy
Of course, the Dow’s recent relative outperformance is attributed to a few of its overweight individual names. Most notably, Caterpillar (NYSE:CAT | CAT Price Prediction), the second-largest holding, which goes for $758 and change after a stellar 33% year-to-date gain. In any case, the Dow’s resilience and S&P-topping year-to-date performance are a sign that it can pay big dividends to diversify into the names that some may have forgotten amid the glorious rise of the Magnificent Seven stocks, the red-hot semiconductor plays, and, more recently, the memory and storage plays.
In any case, breadth is back in the markets, and that might be a good sign for the longevity of the bull market. Whether it’s CapEx that’s to blame (primarily) or a lack of true shockers in the latest round of earnings, it just had to be something to cool off the Mag Seven following their terrific ascents.
While the names are probably fantastic buys right here, especially the ones that plunged into a bear market (that’s a 20% decline), those who can’t handle the wild ride might want to check out the non-AI names, which are showing, for once, that they’re also worth owning in the portfolio.
Whether this rotation towards value lasts for more than a month remains a giant question mark. Either way, it’s probably worth owning both sides of the trade with the fallen growth darlings, especially those with agentic AI upside, as well as the non-AI names that will eventually experience trickle-down “productivity” benefits from the AI revolution.
Don’t forget about old-economy stocks
With Goldman Sachs (NYSE:GS), which also happens to be the biggest Dow component, recently pointing to old-economy names beyond the Mag Seven that stand to benefit from AI adoption, including Moody’s (NYSE:MCO), perhaps it’s time to set the sights on the more heavily discounted AI beneficiaries. Undoubtedly, shares of Moody’s have been under pressure, tanking over 23% in the past few weeks, thanks in part to fears that agentic AI will disrupt the company’s wide economic moat.
Even if agents can analyze risk more easily (or even better), Moody’s stamp of approval, I think, is irreplaceable. In fact, due to regulatory roadblocks, Moody’s moat seems intact, even if it’s not all too fast to adopt agentic technologies, which it is.
With such a massive data moat and a quick pivot to AI agents, I think the latest crash in shares is a huge opportunity for investors looking for the bull market to broaden out alongside the list of names that stand to benefit from significant AI-driven productivity gains. Either way, I’d look for the Dow and perhaps an equal-weight version of the S&P or perhaps a small-cap fund to be more than worth diversifying into.
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