Why the Dow Keeps Outperforming the S&P 500 This Month

The Dow Jones Industrial Average has closed higher every day in May, beating out the S&P 500 for a rare stretch. How the Dow is constructed is finally helping—rather than hurting—its relative performance.

So far this month, only three of the 30 members of the Dow have subtracted points from the index. Intel has subtracted two and a half points, while Walt Disney and McDonald’s subtracted 34.82 points and 33.44 points, respectively. All three were overshadowed by Amgen alone, which has added 255.69 points to the Dow in May. Goldman Sachs, Microsoft, UnitedHealth Group, and Caterpillar have each added more than 100 points to the Dow this month. Amazon.com and Apple each added more than 90 points.

On the flip side, only 80% of the stocks in the S&P 500 are trading higher. Its biggest laggards—each of which are down more than 10%—are EPAM Systems, CVS Health, Qorvo, Expedia, Starbucks, Norwegian Cruise Line Holdings, Skyworks Solutions, Baxter International, and Estée Lauder. None of those stocks are in the Dow.

Frank Cappelleri, founder of technical analysis firm CappThesis, tells Barron’s that the amount of stocks in each index—and their respective weighting structures—make a difference. The S&P is weighted according to the market capitalization of its components—unlike the Dow, which is price-weighted so the highest-priced stocks have the largest impact. Plus, 30% of the stocks in the S&P are in the tech sector, with 13% in financials. The Dow, meanwhile, is 24% financials and 19% tech.

“The industries within those sectors have different weights, too,” he says. “The same is true with the other sectors.”

The S&P may also be dealing with some other technical headwinds.

“The S&P 500 is undergoing a correction through time, not price, which is a fancy way of saying that a trading range has developed,” writes John Kolovos, chief technical market strategist at Macro Risk Advisors.

He sees 5,265 as a key resistance level for the S&P, followed by 5,390. Kolovos sees major support at 4,950.

The S&P was up 0.5% to 5,214.08 on Thursday. The Dow was up another 331 points, or 0.9%. The Dow marked its seventh straight session in the green.

The Dow has risen for seven straight days 190 other times since its inception, according to Dow Jones Market Data. Since 1950, it has strung together five or more winning sessions 369 times. What comes after such a streak is less exciting: The Dow has averaged a gain of just 0.02% since 1950 in the month after rising for five or more straight sessions. That said, it’s gained 53% of the time in the month that has followed.

It will take a longer streak for the Dow to beat the S&P 500 in 2024: So far this year, the indexes have gained 4.5% and 9.3%, respectively. But if the market’s rally broadens out and artificial intelligence winners lag behind, the Dow could be poised to keep the good times rolling into the summer.

Write to Connor Smith at [email protected]