The Dow Jones Industrial Average on Wednesday exited correction territory after 27 days, underscoring the important role of the "old school" economy in the artificial-intelligence boom.
Unlike the tech-centric S&P 500 SPX and Nasdaq Composite COMP indexes, the 130-year-old Dow DJIA has been on a slower path to recovery from the rout that hit equities after the onset of the Iran war. The Dow includes a number of the world's biggest tech names, but is also gives investors exposure to a diverse group of 30 "blue-chip" companies known to be among the world's most financially stable and important.
To drive the point home, Caterpillar shares $(CAT)$ were the top contributor to the Dow's recovery from its correction low of 45,166.64 on March 27, as well as its move back to the cusp of 50,000 points, according to Dow Jones Market Data, as the below chart shows.
The Dow jumped 612 points, or 1.2%, to end at 49,910 Wednesday on renewed optimism around a potential end to the Iran war. The blue-chip index needed a close above 49,683.30 to officially exit its correction, which saw it drop more than 10% off its recent peak.
Caterpillar's earnings at the end of April reflected the construction-equipment maker's tangible role in the estimated $765 billion spending boom this year to build out AI infrastructure. Goldman Sachs anticipates AI-related annual capital expenditures will reach $1.6 trillion by 2031, with Caterpillar poised to benefit along the way.
Read: Caterpillar rides strong AI power demand to a big earnings beat - and a stock surge
"We had kind of a sweaty first quarter," said Talley Leger, chief market strategist at the Wealth Consulting Group, of the selloff in stocks after the U.S. and Israel attacked Iran in late February. But now, Leger said his focus is back to where it started the year - on the AI race and the productive capacity of the U.S. economy.
"This is not just about five companies," Leger said of the small group of "hyperscaler" tech companies at the heart of the AI race. "This is about the ripple effects across the market. Now, it's also an old-economy theme."
Of note, manufacturing activity expanded in April for the fourth month in a row, following a prolonged contraction in activity. That should give the U.S. economy more breathing room as many households feel the pinch of increased inflation. Average U.S. gas prices were at $4.50 a gallon on Wednesday, up 44% from a year ago.
Consumers have been holding up surprisingly well despite extra costs during the Iran war, "but the scaffolding is showing cracks," according to Bob Schwartz, senior economist at Oxford Economics. In a May 1 client note, he observed that the U.S. savings rate sank to a three-and-a-half-year low of 3.6% in March "as households leaned on stock-market wealth rather than income to fuel spending - a precarious foundation."
Shares of Costco $(COST)$, Walmart $(WMT)$ and Coca-Cola $(KO)$ also contributed to the Dow's recovery from its correction, as did those of AI plays Amazon.com (AMZN) and Nvidia (NVDA), according to Dow Jones Market Data.
Shares of energy companies were following crude-oil prices (CL00) (BRN00) lower Wednesday, while financial-services shares in the Dow have remained under pressure.
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