Throughout 2025, the Dow Jones Industrial Average (DJIA) recorded a total return of 14.9%, reflecting solid performance yet trailing the Nasdaq Composite's 21.1% total return. This outcome marked the eighth underperformance for the Dow relative to the Nasdaq over the last decade. However, an in-depth review of the Dow’s structure and historical return drivers suggests a potential for reversal, where the Dow could lead both the Nasdaq and the S&P 500 in returns in 2026.
The Dow’s composition fundamentally distinguishes it from the broader Nasdaq Composite and the S&P 500 indices. While the Nasdaq Composite encompasses thousands of securities, and the S&P 500 roughly 500 large-cap companies, the Dow is much more selective with just 30 constituents. Importantly, the Dow employs a price-weighted methodology, which assigns greater influence to stocks with higher share prices, rather than weighting by total market capitalization as the other indices do.
Currently, the top five weighted Dow holdings include financial giants Goldman Sachs, American Express, and tech stalwart Microsoft, alongside Caterpillar and Home Depot. Notably, the dominance of financials, which constitute 28.3% of the Dow, is attributable to strong nominal stock prices and outperformance by this sector's components including Visa and JPMorgan Chase. Technology, while central to Nasdaq and comprising 34.4% of the S&P 500, accounts for 20.2% of the Dow, reflecting a more balanced sector distribution. Industrials comprise 14.7% of the Dow, underscoring its more diversified exposure toward cyclical economic sectors.
The strategic inclusion of growth-oriented companies such as Nvidia, Amazon, and Salesforce has increased the Dow's exposure to growth stocks since 2020 and 2024. Nevertheless, in 2025, Amazon and Salesforce underperformed the S&P 500, as did the large-cap tech firms Apple and Microsoft, which are Dow components. While Nvidia significantly outstripped the S&P 500’s returns, it represents only 2.3% of the Dow compared to 7.2% and 13.4% weights within the S&P 500 and Nasdaq-100, respectively, limiting its influence on the Dow's performance.
Observing the past decade's performance reveals the Nasdaq’s dominance, culminating in a cumulative total return of 408.3%, ahead of the S&P 500's 298.3%, and the Dow's 242.6%. The Dow outperformed the Nasdaq in just two years over this span: 2016 and 2022, with 2022 being notable as the Dow declined but to a lesser extent than the Nasdaq and S&P 500 amid challenging market conditions.
Despite trailing in total returns, the Dow's concentration of established value stocks confers resilience during market sell-offs, particularly when downturns are unrelated to sectors where the Dow is heavily invested, such as artificial intelligence. This dynamic is reinforced by valuation metrics: the Dow's price-to-earnings (P/E) ratio stands at 23.9, noticeably lower than the 29.2 ratio for the Vanguard S&P 500 ETF and the 33.5 figure for the tech-heavy Invesco QQQ Trust, which tracks the Nasdaq-100. Thus, in circumstances where investors demand earnings-based valuation discipline (multiple compression), the Dow is positioned to hold value better than its growth-centric counterparts.
For investors contemplating portfolio composition, the contrasting attributes of growth and value stocks call for a balanced approach rather than wholesale shifts. Blue-chip dividend-paying stocks within the Dow, such as Coca-Cola, Procter & Gamble, Chevron, McDonald’s, and Home Depot, offer steady income and have demonstrated long track records of dividend growth, with Coca-Cola and Procter & Gamble classified as Dividend Kings for over 60 consecutive years of dividend raises. McDonald's is poised to join this group imminently, while Chevron and Home Depot provide exposure to energy and consumer discretionary cyclicals, respectively.
The upcoming year, 2026, represents a critical evaluation period for companies, particularly in the artificial intelligence domain, that have escalated capital expenditures. The market will closely monitor whether these investments translate into earnings growth sufficient to justify elevated valuations. Challenges or setbacks in realizing expected earnings could favor the Dow’s profile due to its reduced reliance on high-valuation technology stocks and greater weighting in financials and industrial sectors.
Summarizing, the Dow Jones Industrial Average's distinctive index construction, value-oriented composition, and comparatively lower valuation multiples underpin the argument for potential outperformance against the Nasdaq Composite and S&P 500 in 2026, despite a decade-long pattern favoring the Nasdaq. Its sectoral concentration in financials and industrials and steady dividend-paying blue chips provide diversification and defensive qualities potentially attractive amid market shifts and valuation recalibrations.