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

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.

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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.

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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.

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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.

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"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.

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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.

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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.

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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.

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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.

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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.

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