The US stock market has changed its flavor.

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Since the beginning of 2024, the S&P 500 has risen by more than 15%, outperforming not only the Dow Jones Industrial Average's over 8% gain but also the Nasdaq Composite (+14.35%), which benefited from the AI hype. This clearly shows that the U.S. stock market has truly changed—the driving force behind the rally is no longer limited to growth stocks and big tech but has rotated to traditionally safer and more conservative sectors, indicating a broad-based uptrend.
Here are the five key reasons why the S&P 500 has outperformed the Dow and Nasdaq so far this year:
1. The "Magnificent Seven" Lose Their Shine
The "Magnificent Seven" refers to the seven tech companies whose stock prices surged in 2023. However, most of them have struggled to maintain momentum this year, with their performance even lagging behind the S&P 500. Since these stocks carry a heavier weight in the Nasdaq than in the S&P 500, strong performers like NVIDIA $NVIDIA(NVDA.US) and Meta Platforms have a more pronounced impact on the former. Yet, due to valuation concerns, investors are questioning whether their earnings growth can continue to justify higher multiples, leading to a cooling-off in many growth stocks.
2. Valuation Concerns
Generally, the Nasdaq Composite's P/E ratio tends to be higher than that of the S&P 500 and the Dow, as many Dow components are valued more on future earnings potential rather than current profits. For example, Microsoft has far greater earnings growth opportunities than Coca-Cola, justifying its higher valuation.
However, if investors start doubting whether earnings growth will meet expectations or if the valuation gap between value and growth stocks becomes too wide, these growth stocks could face a "valuation reset." For instance, the Invesco QQQ Trust, which tracks the Nasdaq 100, has a P/E of 37.8, compared to 27.8 for the SPDR S&P 500 ETF and 24.3 for the SPDR Dow Jones Industrial Average ETF.
3. Catch-Up Rally in Other Sectors
2024 has been a year of catch-up for many lagging sectors. As of mid-August, the best-performing Vanguard ETF this year is the Vanguard Utility ETF. Additionally, sectors like consumer staples, financials, and healthcare have also performed well. These stocks were simply too cheap relative to other market segments, making them ripe for rotation-driven gains.
Moreover, the market dislikes uncertainty. With U.S. stocks hovering near all-time highs, recession fears looming, and the upcoming U.S. election, investors have naturally gravitated toward safer bets. The market action on September 3 is a prime example: while the Nasdaq fell over 3% and the S&P 500 dropped more than 2%, consumer staples rose 0.7%, and utilities and healthcare largely held steady.
4. Strong Performance of Mega-Cap Value Stocks
Growth stocks dominate the weightings of major U.S. indices, with tech alone accounting for 31% of the S&P 500. Recently, however, some non-tech giants have stood out. For instance, Berkshire Hathaway, JP Morgan, Walmart, and Coca-Cola—four industry leaders with a combined market cap exceeding $2.5 trillion—have all outperformed major indices this year. Their gains are driven not by stellar earnings but by low expectations and valuations. Take Walmart, the best-performing Dow component in 2024: it was undervalued yet delivered modest growth.

5. Funds Favor "Safe Stocks"
Another advantage of many non-tech giants is their resilience during economic slowdowns or recessions. When growth slows, consumers may cut back on discretionary spending, businesses reduce chip orders from NVIDIA, and industrial firms scale back equipment investments. However, demand for utilities (water, electricity, gas), healthcare services, Coca-Cola products, or Procter & Gamble's detergent brands remains stable.