Dow’s 2024 Struggles Against the S&P 500

The Dow’s underperformance can be partly attributed to its structure as a price-weighted index, where higher-priced stocks like UnitedHealth Group have more influence than tech giants like Apple and Microsoft. This is unlike the S&P 500 and Nasdaq Composite, which are weighted by market capitalization.

In 2024, the Dow Jones Industrial Average significantly lags behind other major indexes, with the S&P 500 outperforming it by 12.65 percentage points as of Tuesday. This gap is near historic levels, closely following last year’s 12.8 percentage-point difference.

Megacap tech stocks have driven most of the gains for the S&P 500 and Nasdaq Composite this year, leaving the less tech-heavy Dow behind. From October 2022 to June 2024, the S&P 500 saw a 55% total return, with 60% of that from just 10 stocks, according to Ronald Temple of Lazard Asset Management. Despite predictions for a broader rally, the market remains tech-focused.

The divergence extends beyond the Dow and S&P 500; the S&P 500’s equal-weight version is up only 3.9% in 2024, compared to 16.9% for the standard index. This performance gap mirrors the dot-com bubble peak in 2000, as noted by Bespoke Investment Group analysts.

Skeptics argue that a shift away from megacap stocks could help lagging sectors catch up, potentially stabilizing or boosting the broader market.