Why the Dow's summer rally shouldn't be ignored

Stocks have been choppy in August, with the benchmark S&P 500 ( ^GSPC) lagging over the past month. But the same can't be said for the Dow Jones Industrial Average (^DJI).

The Dow tied its longest run of positive trading days ever in late July and has led gains across the three major averages over the past month.

"The first half of the year was all about tech, and it was all about the Magnificent Seven leading the way," Freedom Capital Markets chief global strategist Jay Woods recently told Yahoo Finance. "Now we're seeing a healthy rotation."

After tech and the AI narrative led stocks higher for the first six months of the year, things have shifted. AI isn't moving stocks in the same manner during second quarter earnings. Instead, it's industrials leading the way, and Woods says that could be a bullish sign for markets overall.

"This is a theory that goes back to the early 1900s," Woods said. "And it basically says one thing, when the Dow Jones Industrials, the things that make, and the Dow Jones Transports, the things that take, are doing well. And in this case, both at 52-week highs ... This is a bullish development, and it's something we have to watch."

Woods recently highlighted the Dow's success to Jared Mitovich in Yahoo Finance's Chartbook, which contains 50 charts that tell the story of markets and the economy this year.

As Yahoo Finance's Jared Blikre has pointed out, investors largely view the Dow's recent resurgence as an overall market positive because a rally in the Dow likely means a rally beyond just the tech sector. While the Dow contains just 30 companies, Industrials (XLI), Health Care (XLV), and Financials (XLF) all represent a large portion of the index's holdings.

The broadening of the market has been one of several factors, including a stronger-than-expected economy, that have driven Wall Street strategists to boost their year-end targets for the S&P 500.

"A broadening of the rally across S&P 500 sectors suggests that the bull market that emerged from the October 2022 lows has legs to run higher into 2024," Oppenheimer chief investment strategist John Stoltzfus wrote on Aug. 1.

Josh Schafer is a reporter for Yahoo Finance.

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