Why the Dow Is Lagging the S&P 500, Nasdaq

Article written by Tom Henderson

The Dow Jones has been lagging the S&P 500 and the Nasdaq since the market indices bottomed in March. From the lows of March 2009 to the close of trading on June 30, 2009, the Dow has bounced 31%, the S&P 500 38% and the Nasdaq 45%. The Dow has lagged the S&P 500 by 7%, and the Nasdaq by a whopping 14%. Year-to-date percentages (through June 30^th) show the Dow to be lagging even further. From December 31, 2008 through June 30^th 2009, the Dow is down 4%, the S&P 500 up 2% and the Nasdaq up 16%. The Dow is lagging the S&P by 6% and the Nasdaq by 20%.

A similar story takes place with the moving averages particularly with the 200 DMA. The S&P 500 and the Nasdaq are well above their 200 dma. The Nasdaq has been well above its 200 dma since May and the S&P 500 has been above its 200 dma since June 1^st. The Dow has made a few half-hearted attempts to clear its 200 dma, but to no avail as the attempts fail each time.

So why is the Dow lagging the S&P 500 and in particular the Nasdaq so much?

I was curious too so I took a closer look at the Dow. Year-to-date (again through June 30^th), 14 of the Dow stocks are up and 16 are down. As far as the moving averages go, 16 of the Dow stocks are trading above their respective 200 dma, and 14 below. The four greatest performers in the Dow are American Express (AXP) gaining 29%, IBM (IBM) gaining 25%, Intel (INTC) gaining 15% and Microsoft (MSFT) gaining 24%. The four worst Dow performers are Caterpillar (CAT) down 24%, General Electric (GE) down 25%, Procter & Gamble (PG) down 16% and Wal-Mart (WMT) down 13%.

Looking at the Dow outperformers, three are from the technology space. So that seems to be the key this year to outperformance – technology. Interesting enough you may think with the tremendous upheaval in the financial system that the financial stocks would have stood out to the down side.

Well, that does not seem to be the case at least with the Dow. American Express as mentioned above was actually the number one Dow performer through June 30^th. The four largest underperformers include Caterpillar losing 24%, General Electric losing 25%, Procter & Gamble losing 16% and Wal-Mart losing 13%.

There does not seem a pattern to the underperformers though. It seems that the Dow underperformance is due to its lack of technology stocks. This would explain why the tech heavy Nasdaq is outperforming by such a large margin.

Below is a table of the Dow 30 as of the close of June 30^th.

Symbol	% ytd	Above 50 dma?	Above 200 dma?	Industry
aa	-8.26	above	below	Materials
axp	29.04	below	above	Financial
ba	1.60	below	below	Industrial Aerospace
bac	-5.92	above	below	Financial
cat	-24.27	below	below	Industrial Farm
csco	14.42	below	above	Technology / Network
cvx	-8.73	below	below	Materials Oil
dd	4.57	below	below	Materials Chemicals
dis	2.82	below	above	Entertainment
ge	-24.92	below	below	Conglomerate / Ind / Fin
hd	4.88	below	above	Home Improvement
hpq	7.06	above	above	Technology
ibm	25.40	above	above	Technology
intc	15.01	above	above	Technology - Semi
jnj	-3.43	above	below	Pharmaceuticals
jpm	9.69	below	above	Financial
kft	-3.28	above	below	Food Diversified
ko	8.04	above	above	Beverages
mcd	-5.92	above	above	Restaurants
mmm	6.50	above	above	Conglomerate / Industrial
mrk	-5.19	above	above	Pharmaceuticals
msft	23.87	above	above	Tecnology - software
pfe	-12.49	above	below	Pharmaceuticals
pg	-16.04	above	below	Pers. Consumer Products
t	-10.16	above	below	Telecom
trv	-7.75	above	above	Financial / Insurance
utx	1.54	above	above	Conglomerate / Industrial
vz	-6.74	above	above	Telecom
wmt	-12.64	below	below	Discount retail
xom	-11.46	above	below	Energy Oil Gas
	14 up
	16 down

Dislclosure: The firm I work for is long Microsoft. There are no other disclosures.

Comments

[BlueOkie:]

What stocks were in the DOW on 1 Jan vs today? Big percentage change. This is just a bunch of numbers. What's the point?

Jul 07 02:43 PM

[The Inflect...:]

The first question you ask is very good.

Very recently in 2009, there were two changes to the Dow. Citi and General Motors were replaced with Cisco and Travelers. Cisco added more technology to the Dow. Since these were only added in June, they have not had much impact on the year to date stats. Going forward they will play a larger role.

I did this exercise after noticing the performance spread between the Dow and the Nasdaq and wanted to find out why this was happening. Once I dug around, and realized it was technology, it made sense to share this with others.

Going forward the large question is, will this performance differential continue? Over the past few days we could see a slight narrowing as the Nasdaq has moved down faster than the Dow has.

Thanks again for the comment.

Tom Henderson


On Jul 07 02:43 PM BlueOkie wrote:

> What stocks were in the DOW on 1 Jan vs today? Big percentage change.
> This is just a bunch of numbers. What's the point?

Jul 07 06:23 PM