Dow vs. S&P

Today’s Chart comes from Benedek Voros from S&P Dow Jones Indices. I always like to point out firsts, and this year there have been many.

The latest one is the Dow Jones Industrial Average, which is comprised of 30 “blue chip” stocks. It is the oldest continuous US stock index dating back to 1896, and it is the most quoted in the news. It leads the S&P 500, arguably the second most popular index, by 10% year-to-date. If this holds up through the end of the year, this will be the largest annual out-performance against the S&P 500 since its inception in 1957.

The Dow Jones index is more concentrated with only 30 stocks, and it is not weighted by the value of the companies. The S&P 500, however, has 500 stocks and is weighted by their size, also known as market cap weighted. This difference provides an opportunity for “dispersion,” which can cause the difference in performance seen this year. Quite simply, this year the Dow just happens to have some stocks that did better than the rest of the market.

Our industry often uses the S&P 500 when quoting “the market” since it more accurately represents all stocks, but we also follow the Dow Jones index since it has such a long history and is often the most quoted in the news.

Now you know the difference.