Dow Up, Nasdaq Down: How to Read a Market Rotation

Monday’s close looked contradictory. The Dow Jones Industrial Average rose 0.4% to 51,984. The Nasdaq Composite fell 1.1% to 25,164, and the S&P 500 slipped 0.5% to 7,541. Even stranger, the S&P 500 and the Nasdaq had both been up more than 1% earlier in the day before reversing.

When the major indexes go in different directions, the cause is usually a rotation: investors selling one group of stocks and buying another, rather than leaving the market altogether.

What was sold, what was bought

The selling was concentrated in technology and AI-related names. Nvidia and Meta each fell about 1%, and Apple dropped nearly 2% before its earnings. Oracle lost 8% after announcing a $20 billion share and bond sale to fund data centres. Marvell and Lumentum both slid on their merger news.

The buying went to older-economy businesses. Sherwin-Williams rose almost 6% and Home Depot 3.6%. Honeywell, 3M and Boeing each gained more than 2%. Last week, money also flowed into defensive sectors such as healthcare and consumer staples.

Why the indexes diverged

The three indexes are built differently, so the same rotation shows up differently in each:

• The Nasdaq Composite is heavily weighted toward technology. When tech sells off, it falls hardest.
• The S&P 500 weights companies by market value. Because the largest US companies are mostly tech firms, it leans toward tech too, but less heavily.
• The Dow holds only 30 stocks and weights them by share price, not company size. A stock with a high share price, such as Home Depot or Sherwin-Williams, moves the Dow more than a far larger company with a lower share price. This quirk makes the Dow a poor measure of the overall market. On days like Monday, though, it’s a useful view of the non-tech economy.

What’s driving the rotation

Three forces came together on Monday:

1. AI spending doubts. Last week’s earnings showed the biggest tech companies spending more on AI than their operations bring in. The Nasdaq had its worst month in October since early 2025. Every new financing announcement, like Oracle’s, reinforces the worry.
2. Falling oil. Crude dropped more than 7% on hopes for US–Iran talks. Cheaper fuel helps industrial companies, airlines and retailers, the kinds of businesses the Dow is full of.
3. A strong factory survey. The ISM manufacturing index showed production at its strongest since 2021. That’s good news for industrial companies and their suppliers.

Is this the start of something bigger?

Rotations can be brief, a day or two of repositioning, or they can mark a long change in market leadership. It’s too early to say which this is. There’s genuine disagreement among professionals. Deutsche Bank moved back to “overweight” on technology on Monday, arguing the sell-off had made the risk-reward attractive again. Others see the AI spending cycle as a reason for tech to lag for longer.

It’s worth remembering how concentrated the US market has become. A handful of tech giants make up a large share of the S&P 500’s value. A sustained rotation away from them would weigh on index funds even if most companies in the index were doing fine. That’s one reason some investors deliberately hold an equal-weight index fund or broader international exposure alongside a standard index fund.

Today: the election

All of this happened on the eve of today’s US midterm elections. As we noted in our week-ahead guide, the vote is more likely to affect particular sectors (defence, pharmaceuticals, data-centre regulation) than the market as a whole. Results that shift control of Congress could extend the rotation, by adding pressure on drug makers and data-centre operators, or reverse parts of it.

For long-term investors, days like Monday are a reminder that diversification is about owning businesses that react differently to the same news. On a day when the Nasdaq fell over 1%, a portfolio holding both groups barely moved.