Dow 30, S&P 500, and Nasdaq 100 have started showing a divergence since the beginning of 2022. Since January 2022, the Dow 30 is down by 13.81 percent, the S&P 500 and Nasdaq 100 are lower by 17.66% and 25.87% respectively. Over the 12-months period, the Dow 30 is down by 11.45%, the S&P 500 and Nasdaq 100 are lower by 13.48% and 22.71% respectively.

Nasdaq 100 has a very distinctive list of companies and some of the world’s leading tech names across major industry groups such as Industrials, Consumer Goods, Health Care, Consumer Services, Telecoms, Utilities and Technology have their stocks listed on Nasdaq 100. Some of the top U.S. stocks by weightage in the Nasdaq 100 are Microsoft, Apple, Amazon, Alphabet (Google), Meta (Facebook), Intel, Cisco Systems, Comcast and Pepsico, Tesla, Nvidia, Adobe and Paypal. The reason why these names underperform bluechips and broader market indices is that they are particularly susceptible to significant interest rate moves.

Yesterday, on September 7 in its Beige Book report, the Federal Reserve said that although “U.S. economic activity was essentially unchanged in the past two months, the outlook for future economic growth remained generally weak.”

The Fed’s Beige Book survey of its 10 districts in July and August found further softening of demand over the next six to twelve months was expected. The report noted that inflation remained “highly elevated,” but that nine of the districts saw some degree of moderation in the rate of increase. Still, most of the Fed’s business contacts explained that they anticipated price pressures would persist at least through the end of this year.

The Fed indicated the overall labor market remained tight, although some improvement in worker availability was seen in nearly all districts. In addition, employers in several districts reported giving mid-year and off-cycle pay raises to offset higher living costs, and many felt offering bonuses, flexible work schedules and comprehensive benefits were necessary to attract and retain employees.

The report explained consumer spending was steady in most of the country, but it continued to shift away from discretionary items toward food and other essentials. All in all, this highly suggests Nasdaq likely will keep underperforming other key market indices going forward.