Dear Nasdaq: A Letter From a Price-Weighted Index With Nothing to Be Proud Of

Dear Nasdaq,

You had a rotten week, and I am writing to say that I had a fine one. I am up 0.67%, my second straight weekly gain, and I closed Friday at 52,002.41 after a modest 0.34% dip. Please do not read this as gloating. Gloating would require me to believe it means something, and I have been around too long for that.

You, meanwhile, finished Friday at 26,140.03, down 2.14%, your worst session since 23 July, and down 4.5% on the week. Your hundred-name cousin lost 5.5% over the five days. The S&P 500 split the difference at 7,659.44, off 1.95% for the week, its worst since the week ended 26 June. If someone told you I was having the better week, I would like you to hear it from me first: it is true, and it is an accounting accident.

Let me explain what I am, since nobody has asked in years. I am thirty stocks, weighted by share price, a method that would embarrass a first-year analyst. I own very little of what you own, and almost none of the part that matters this month. On Friday 68 of the 75 technology stocks in the S&P 500 closed lower. AMD lost 6%. Intel lost 5.8%. Micron lost 5.6%, Broadcom 4.5%. The Philadelphia Semiconductor Index fell 3.83% for its eighth straight session, matching the longest losing streak since 2006. I held none of that in any weight worth mentioning, so I was spared. That is the whole story of my week. I was not clever. I was absent.

The equal-weight S&P 500 fell only 0.42% on Friday against 1.09% for the cap-weighted version, which tells you the market's pain lives in a short address. Half the index, give or take, closed lower. The other half had a quiet Friday and a decent week. A fund manager who owns the index sees one number. A fund manager who owns your top ten sees another. A retail account that bought "the market" in 2023 and added whatever was working since owns something that looks a lot more like you than like me.

Now the part I find hard to say politely. The usual comfort at this stage of a tech selloff is that bonds will catch the fall. They tried. The 10-year Treasury yield dropped 14.6 basis points this week to 5.097%, its biggest weekly decline since February, and you fell anyway. On Friday it moved a single basis point and the 2-year slipped three to 4.74%, and the cap-weighted tape still lost more than 1%. The VIX jumped 21.45% to 19.99, one tick below the number where the sell-side starts writing notes with the word "inflection" in the title. When the rate comes down and the multiple does not follow, the rate was never the only problem. The problem is who pays for the next gigawatt and at what yield. CoreWeave fell 11.9% on Friday and Nebius 12.2%, and the credit default swaps on the first of those crossed 1,000 basis points on Thursday morning according to Reuters. That is a price for the end of a story, quoted by people who read the footnotes.

I can offer historical perspective, since I have little else. In the spring of 2000 the old-economy indices caught a rotation bid and briefly believed it was a verdict on their business models. It was a verdict on the other fellow's. I do not recommend that anyone treat my two weekly gains as a signal. Utilities jumped 3.5% in September industrial production, which lifted the headline to +0.7%, while manufacturing rose 0.3% and motor vehicle output fell 3%. That is a stack of numbers describing a very uneven economy, and I sit near the middle of it, taking credit for things I do not do.

There is also oil, which I have to mention because it has been unkind to you and generous to my smaller friends. Brent rose 3.7% to $109.86 on Friday, WTI crossed $101, and the S&P 500 energy sector gained about 2.5% while yours, the technology one, lost more than 3%. Look at what that does to the sums you have to do next week. Crude at that level feeds a CPI that printed 3.7% for September and a producer price index that jumped 1.3% on the month. The Fed is at 3.75–4.00%, with a meeting on 27–28 October, PCE on the 29th and an election on 3 November. Nobody at the central bank intends to explain itself in advance, as is the new custom. You will therefore learn the answer at the same moment as everyone else, and you will be priced for it before the paragraph ends.

I do not enjoy telling you this, but your problem has stopped being earnings. Third-quarter profit growth is running close to 30%, and the numbers coming out of your largest members are mostly fine. The problem is the price of the asset you need to keep building, and the price of the person who holds the paper while you build it. The risk-free rate at five percent and a bit has changed what a dollar of future revenue is worth to someone whose cost of funds is fifteen. Bitcoin, which advertised itself as the escape hatch, slid to around $81,500. Some of your admirers fled to energy. A handful fled to me. I am not equipped for the traffic.

My advice, for what a price-weighted dinosaur's advice is worth, is to stop reading the index on the screen and start reading the account. The thirty names I carry will not rescue a portfolio that is concentrated in the thirty you carry. If next week's session opens badly, do not expect me to be the safe harbour. I am a harbour with a good view and no breakwater.

Yours in mutual indifference,

The Dow Jones Industrial Average
Thirty stocks, one weekly gain, no thesis