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Dow Jones Industrial Average Goes Nowhere as Nasdaq Composite Leaps. Here’s Why.


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Photograph by Mario Tama/Getty Images

It’s a tale of two markets, as the
Dow Jones Industrial Average
and
S&P 500
go nowhere, while the
Nasdaq Composite
just keeps on rising.

The Dow has dipped 10.10 points, while the S&P 500 has ticked up 0.1%. The Nasdaq Composite, however, has gained 1.2%.

What explains the dichotomy? It’s all about big tech, using the term broadly.
Apple
(AAPL),
Microsoft
(MSFT), and
Intel
are the top three stocks in the Dow, with each up more than 1%. The benchmark is missing companies like
Netflix
(NFLX) and Activision-Blizzard (ATVI), which are pushing higher.

But even more in the Nasdaq’s favor is its sector composition. Just three sectors were higher Wednesday at the time of—communications services, health care and tech—and the Nasdaq happens to be heavy of those types of companies. It’s 48% tech, and 11% health, with communications services—Netflix, Alphabet, and
Facebook
—and consumer cyclicals—home to
Amazon.com
(AMZN)—each comprising more than 10% of the index.

The Dow, on other hand has just 20% in tech, but 18% in financials, and 12% in industrials. Those two sectors are down 2.2% and 0.8%, respectively. The question remains: How much longer can big tech support the stock market?

Flir Systems
(FLIR) has gained 9.9% after reporting a profit of 42 cents a share, in line with analyst expectations. So why the big gain? We’ll let CEO Jim Cannon explain. “As the COVID-19 pandemic has created unprecedented challenges around the globe, we are extremely proud that FLIR products and technology are playing a critical role in helping combat the spread of this virus,” he said. “As a result, we continue to experience increased demand for our thermal cameras for use in Elevated Skin Temperature-or EST-screening”

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DaVita
(DVA) has gained 8% after reporting a profit of $1.83 a share, beating forecasts for $1.47 a share. “While COVID-19 creates some uncertainty (e.g. mix), we view DVA as well positioned given the company’s scale, sophistication and the non-discretionary nature of dialysis treatments,” writes SunTrust analyst David MacDonald. “In addition, financial flexibility/liquidity is attractive, further aiding strategic positioning, and we see areas of opportunity.”

Prudential Financial
(PRU) has slumped 7.1% after reporting earnings of $2.32 a share, well below the consensus estimate of $2.77 a share. “PRU’s results were not as poor as they appear at first glance, but were weak nonetheless,” writes JPMorgan analyst Jimmy Bhullar. “Downside to EPS remains a risk for the stock in the near term.” He has an Overweight rating on the stock.

KLA Corp.
(KLAC) has risen 6.2% after reporting a profit of $2.47 a share, beating analyst forecasts for $2.28 a share. “We…expect stock to outperform memory exposed peers on lower exposure to memory capex where we expect more cuts,” writes Citi analyst Atif Malik. “Moreover, we like multiple new products (Gen 5, X-ray, E-beam) firing this year.”

L Brands
(LB) stock continues to slide after its sale of a majority stake in Victoria’s Secret to Sycamore Partners was called off. Shares are down 5.7% on Wednesday.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

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