Prediction: After Underperforming the Nasdaq for 8 of the Last 10 Years, the Dow Will Beat the Nasdaq and S&P 500 in 2026

The Dow Jones Industrial Average (DJINDICES: ^DJI) had a great year in 2025, with a total return of 14.9%. But it still fell short of the Nasdaq Composite's (NASDAQINDEX: ^IXIC) 21.1% total return, marking the eighth year out of the last 10 that the Dow has underperformed the Nasdaq.

Here's why the Dow could go against the odds and outperform the Nasdaq and the S&P 500 (SNPINDEX: ^GSPC) in 2026, what it could mean for your financial portfolio, and five Dow dividend stocks to buy now.

Image source: Getty Images.

Dow return drivers

The Nasdaq Composite contains thousands of stocks listed on the Nasdaq exchange, while the S&P 500 is comprised of around 500 leading large-cap companies. The Dow is even more selective, with just 30 holdings.

A big difference between the Dow and other indexes is that it's price-weighted rather than market-cap weighted, meaning the most valuable companies don't carry the most weight. The five largest holdings in both the Nasdaq and the S&P 500 are Nvidia, Alphabet, Apple, Microsoft, and Amazon. The five largest Dow holdings by weighting are Goldman Sachs, Caterpillar, Microsoft, American Express, and Home Depot (NYSE: HD).

Massive outperformances by financial stocks with high nominal stock prices, such as Goldman Sachs, American Express, Visa, and JPMorgan Chase, have pushed financials to become the largest sector in the Dow. They make up 28.3% of the index, followed by 20.2% for tech and 14.7% for industrials. The Nasdaq is dominated by tech-focused companies, while 34.4% of the S&P 500 is in tech.

The addition of Nvidia and Amazon (in 2024) and Salesforce (in 2020) has made the Dow more growth-stock-focused. But it's worth noting that Amazon and Salesforce both heavily underperformed the S&P 500 in 2025. So did Dow components Apple and Microsoft. Although Nvidia crushed the S&P 500 again in 2025, it only makes up 2.3% of the Dow compared to 7.2% of the S&P 500 and 13.4% of the Nasdaq-100, which is the 100 largest non-financial companies by market cap listed on the Nasdaq stock exchange.

Nasdaq dominance

Over the last decade, the biggest year of outperformance for the Dow relative to the Nasdaq and S&P 500 was 2022, when the Dow lost value, but didn't fall as much as the S&P 500 or Nasdaq. 2016 is the only other year the Dow beat the Nasdaq, although it was close in 2017, 2018, and 2021.

Data source: YCharts.

All told, the Nasdaq produced a total return of 408.3% over the last decade, compared to 298.3% for the S&P 500 and 242.6% for the Dow.

Given its concentration in industry-leading value stocks, the Dow should hold up better during a stock market sell-off than the Nasdaq or S&P 500. That's especially true if the sell-off is driven by themes that the Dow is less exposed to, like artificial intelligence.

The SPDR Dow Jones Industrial Average ETF, which tracks the index, has a price-to-earnings (P/E) ratio of just 23.9 compared to 29.2 for the Vanguard S&P 500 ETF and a whopping 33.5 for the Invesco QQQ Trust, which tracks the Nasdaq-100. So the Dow should hold up well if there's multiple compression in 2026 -- meaning that stock prices grow slower than earnings. The theme in recent years has been multiple expansion, because stock prices have risen faster than earnings. Multiple expansion can run wild during bull markets when investors are optimistic about potential growth, rather than solely focusing on what companies are producing today.

Pairing growth stocks with Dow dividend stocks

Even if value stocks outperform growth stocks in 2026, that doesn't mean it's a good idea to overhaul your investment portfolio by selling out of winning positions and loading up on blue chip Dow dividend stocks. Rather, a better approach is to conduct a portfolio review and make the case for owning stocks with stretched valuations.

A great company at a premium price is often a better long-term holding than a decent company at a great price. Because valuations are often based on trailing 12-month earnings or projected earnings over the next year, a company with a clear runway for future growth over the next three to five years may be more reasonably priced than it appears at first glance.

Still, investors looking to round out a growth-driven portfolio with value stocks can turn to leading dividend-paying Dow components like Coca-Cola, Procter & Gamble, Chevron, McDonald's, and Home Depot.

Coca-Cola and Procter & Gamble have increased their dividends for over 60 consecutive years -- making them Dividend Kings, which have a track record of at least 50 consecutive years of dividend growth. Both stocks have pulled back lately due to a widespread sell-off in the consumer staples sector.

McDonald's is on track to become a Dividend King this year, while Chevron has increased its dividend for 38 consecutive years. Home Depot doesn't have as long a streak, but it is a great value for investors who believe in a housing market and consumer spending recovery.

Making the case for the Dow in 2026

2026 will be a prove-it year for many AI growth stocks, especially companies that have ramped capital expenditures. Investors who have been buying these stocks will want to see spending translate to earnings growth to justify high multiples.

Any hiccups could lead to the Dow outperforming the Nasdaq and S&P 500 because it has less exposure to tech and tech-focused companies. The Dow could also outperform if cyclical sectors outside of tech, like finance and industrials, lead the market in 2026.

JPMorgan Chase is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Daniel Foelber has positions in Nvidia and Procter & Gamble and has the following options: short February 2026 $150 calls on Procter & Gamble. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Chevron, Goldman Sachs Group, Home Depot, JPMorgan Chase, Microsoft, Nvidia, Salesforce, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.