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Here's How Far the Dow Has Fallen Behind the S&P 500 in 2024

July 10, 2024
minute read

The Dow Jones Industrial Average continues to lag behind as other major stock indexes, such as the S&P 500 and Nasdaq Composite, achieve record highs. This disparity is largely due to the significant influence of high-performing megacap tech shares, which have driven most of the gains in the S&P 500 and Nasdaq Composite in 2024. The Dow, being less tech-heavy, has not kept pace with its peers.

This underperformance is reaching historic levels. As of Tuesday's close, the S&P 500 has outperformed the Dow by 12.65 percentage points for the year. This gap is just below the 12.8-percentage-point lead observed through July 9 of last year, which was the largest on record since 1928, according to Dow Jones Market Data.

The artificial-intelligence-driven rally that propelled the stock market's gains in 2023 was expected to broaden out this year, but that broadening has not yet materialized.

Ronald Temple, chief market strategist at Lazard Asset Management, noted in a midyear outlook that from the lows of October 13, 2022, through June 13, 2024, the S&P 500 had delivered a total return of 55%, with 60% of that return generated by just 10 stocks.

"The S&P 500 Index can continue to be led by tech stocks, but not to the degree it has been in recent years," Temple said.

The Dow's underperformance can also be attributed to its structure as a price-weighted index. This means that moves by companies with higher share prices, like UnitedHealth Group Inc. (UNH) with a share price above $490, have more impact on the index than tech giants like Apple Inc. (AAPL) at around $229 and Microsoft Corp. (MSFT) at about $460. In contrast, the S&P 500 and Nasdaq Composite are weighted by market capitalization, not share price.

The disparity in performance is not limited to just the Dow and S&P 500. A significant gap also exists between the performance of the S&P 500 and its equal-weight counterpart. The equal-weight version of the S&P 500 has risen 3.9% in 2024, compared to a 16.9% gain for the standard version of the index.

Analysts at Bespoke Investment Group have pointed out that the performance spread between the S&P 500 and the S&P 500 Equal Weight index has only been larger during a few days in March 2000, just before the dot-com bubble burst.

Skeptics downplay these divergences, suggesting that a rotation away from the megacap high-flyers will eventually allow the lagging parts of the market to catch up. This rotation could help support the broader indexes or at least limit their downside.

In summary, the Dow Jones Industrial Average continues to trail behind as other major stock indexes reach new heights, driven largely by gains in megacap tech shares. The S&P 500's outperformance over the Dow is approaching historic levels, highlighting a significant bifurcation in the market. While the Dow's price-weighted structure and the influence of high-priced stocks like UnitedHealth Group contribute to its underperformance, the broader disparity between the S&P 500 and its equal-weight counterpart also underscores the market's reliance on a handful of high-performing stocks. Skeptics argue that an eventual rotation could help balance the market, allowing left-behind sectors to catch up and providing some stability to the broader indexes.

Cathy Hills
Associate Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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