With the volatility and tariff talk continuing, we will take a break to discuss something we saw this week that doesn’t happen very often. On Thursday, we saw a market split that makes even seasoned investors do a double‑take. The Dow Jones Industrial Average fell 1.3%, while the S&P 500 managed a skinny 0.1% gain. A gap that wide between the two headline gauges is certainly not unprecedented, but it is also far from normal. Numbers bear that out: since 1990, the Dow and S&P have moved in tandem with a three-year rolling correlation of roughly 0.95, meaning they are in sync almost all the time.
But, you need to peek under the hood at how each benchmark is built to understand why they occasionally break formation. The S&P 500 is a market‑cap‑weighted index: the more the market says a company is worth, the more sway it has. The Dow, by contrast, is a 30-stock price-weighted average that focuses solely on the current share price. Under that system, a $500 stock influences the Dow five times as much as a $100 stock, even if the $100 company dwarfs it in actual size. That design quirk usually amounts to harmless trivia—until a high‑priced constituent stumbles.
And this week, UnitedHealth Group stumbled hard. When they released Q1 earnings on Thursday morning, management shocked investors by blaming a spike in Medicare utilization for missing first-quarter earnings and cutting its 2025 guidance. The stock promptly fell 22%, or $130.93 per share. Because every dollar‑a‑share move in a Dow component pushes the index about six points, UnitedHealth’s drop alone yanked roughly 800 points off the Dow. Meanwhile, eight of the ten biggest movers inside the average were green, including Boeing, Nike, and Home Depot; however, their combined upside could not fill the hole created by one stock with a triple-digit price tag. It was a textbook reminder that the scoreboard can swing on a single headline in a price-weighted world.
In the market‑cap‑weighted S&P 500, the same UnitedHealth face‑plant was little more than a scuff mark. UNH represents only about one percent of that index, so the 22% plunge trimmed roughly a quarter of a percent from the benchmark. That small ding was easily offset by gains elsewhere—Nike popped 4%, Boeing 3%, Procter & Gamble 2.5%, and so on. The S&P resembled a cruise ship absorbing a rogue wave, while the Dow looked more like a speedboat smacking the same swell.
Episodes like this used to feel like once‑in‑a‑blue‑moon curiosities. Lately, they’re showing up on the calendar considerably more regularly, and large‑cap tech is a big reason. If you focus on just the Magnificent 7 technology stocks, they now make up about 1/3 of the S&P 500. However, only four of the Mag 7 are in the Dow, making up about 15 percent of the total—a meaningful gap that widens when megacaps tack on (or shed) tens of billions in value.
Those companies carry massive market‑cap weight in the S&P yet wield surprisingly small clout in the price‑weighted Dow because most have split their shares multiple times. For instance, Apple’s 4-for-1 split in 2020 shifted its Dow influence from top dog to middle-of-the-pack in a single day, while its market-cap footprint within the S&P continued to grow.
Conversely, Dow stalwarts like UnitedHealth, Goldman Sachs, and IBM hold significant sway in the average simply due to their triple‑digit price tags, even though they command far smaller slices of the S&P pie. When one of those high‑priced “speed bumps” hits bad news, the Dow swerves far more dramatically than the broader market.
Put that mix together with the present climate—an earnings season where good news catapults and bad news hammers stocks—and you get more days when the 30‑stock price gauge and the 500‑stock size gauge tell markedly different stories. So, if you feel like you’ve been seeing this movie more often, you’re not imagining things. The divergence is what happens when different weighting math meets an increasingly bar‑bell‑shaped market (see the top section of the chart below, which shows the daily variance).
There’s a practical lesson here for portfolio watchers. When the news headline flashes a triple‑digit Dow loss, don’t assume “the market” has fallen out of bed. While it’s certainly possible it has, especially with the current climate, there’s an increasing likelihood of a divergence. For more diversified investors, the headline drama may not precisely reflect what’s happening inside their portfolios.
In short, Thursday’s split decision wasn’t a warning; it was simple index math playing out in public. UnitedHealth happened to carry an outsize share price in a price-weighted index and swung it in the wrong direction. If the growing dominance of megacap tech keeps pulling the S&P in one direction and the Dow’s price‑tag heavyweights pull the other (or vice-versa), we might have to get used to more of these days. Just remember that two indices built to track the same economy can—and occasionally will—paint very different pictures.
Markets / Economy
- It was a short, volatile, and mixed trading week with markets closed for Good Friday. The S&P finished the week down -1.5%, the Nasdaq was down -2.6%, and the small-cap Russell 2000 was up 1.1%.
- U.S. Retail Sales jumped 1.4% MoM in March, following a 0.2% gain in February. It marked the largest increase in retail sales since January 2023, driven by a 5.3% rise in motor vehicle and parts sales, as consumers appeared to rush to make purchases ahead of impending auto tariffs.
- Housing starts in the U.S. unexpectedly plunged 11% MoM to a seasonally adjusted annualized rate of 1.324 million in March, the lowest level in four months, and fell short of forecasts of 1.42 million, dragged down by weak demand, high prices, and mortgage rates.
Stocks
- U.S. equities were in negative territory. Technology and Consumer Discretionary led the decline, while Real Estate and Energy outperformed. Value stocks outperformed growth stocks, and small-cap stocks outperformed large-cap stocks.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield decreased 16 basis points to 4.33% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by corporate bonds and government bonds.
