While the S&P 500 and NASDAQ 100 hit 14-month highs last week, the Dow Jones Industrial Average failed to maintain the same momentum. The index only touched an eight-month high last week. The pattern is similar for 1-year and YTD performance. The Dow is up 11% over the past year, while the S&P 500 is up 16% and the NASDAQ is up 22%. For YTD performance, the numbers are even clearer, especially when looking at the NASDAQ 100: $DJI +2.3%, $SPX +13.4%, $NDX +36.3%
The relative underperformance can be attributed to several factors. First, the sector weights are different for each index and sector performance has varied greatly over the past year. The largest sectors of the Dow are financials and health care, each contributing about 20%. It is followed by information technology with around 19%. In the S&P 500, information technology has the highest weight at 28%, with healthcare and financials accounting for about 13% each. The NASDAQ is significantly more concentrated, with information technology accounting for 51% of the index. Communication services and consumer discretionary together make up another 31%. In terms of sector performance, Information Technology, Communication Services and Consumer Discretionary have done the main work for the market over both the 1Y and YTD periods. So far in 2023 they are up between 28% and 38%. The other sectors range from -9% for energy to +7% for industry. The 1 year situation is similar.
On the broader market this year, the biggest names made the biggest gains. The top 7 companies in the S&P 500 accounted for most of the market gain, with YTD performance ranging from +37% for GOOGL to +194% for NVDA. It probably won’t come as a surprise that the same seven companies have a massive share of the NASDAQ 100, which collectively makes up 55% of the index. Only two of these heavyweights, MSFT and AAPL, are part of the Dow and together make up about 10% of the index.
A major factor in this week’s market news was comments from members of the Federal Reserve. They all worked to support the statement and dot chart from last week’s Fed release, which saw rates suspended for the first time in over a year. All comments noted that the pause was only temporary and did not represent a U-turn or change in policy. Fed Chair Jerome Powell stressed in his remarks before the House Financial Services Committee that “almost all FOMC participants believe that it will be appropriate to raise interest rates a little further by the end of the year.” Dow gain relative to S&P and NASDAQ given composition of indices. Higher lending rates tend to hurt high P/E growth companies more than the more staid components of the Dow. A slowdown in economic growth is a stated goal of the Fed would also provide relative support for the index.
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