The Dow Jones Industrial Average (DJIA), a vital economic indicator, has experienced a downward trend for nine consecutive days. This is the longest streak of losses since February 1978, raising questions about the factors driving this and the level of concern for investors.
UnitedHealth, one of the 30 stocks in the DJIA, has significantly contributed to this decline. The company has witnessed a 20% drop in the current month due to a wide-ranging sell-off in pharmacy benefit managers following President-elect Donald Trump’s promise to eliminate drug industry intermediaries. The company is also facing a challenging period due to the tragic passing of Brian Thompson, CEO of its insurance unit.
Investors have also been shifting their focus, selling off cyclical stocks in the DJIA that had seen a surge following Trump’s election. These include Sherwin-Williams, Caterpillar and Goldman Sachs, which usually benefit when the economy is thriving. Each of these stocks has seen a decrease of at least 5% this month, which has significantly impacted the DJIA. These stocks had performed well in November as they were perceived as likely beneficiaries of Trump’s deregulatory and pro-economy policies.
The DJIA, mainly made up of blue-chip consumer discretionary and industrial stocks, is seen as a barometer of the overall economic health. The recent sell-off seems to align with growing worries about a weaker economy due to a slight increase in jobless claims data released recently. However, investors remain positive about the economic outlook for 2025, not foreseeing anything akin to the stagnation and inflation of the late 1970s.
Despite this, many investors are not overly concerned about the DJIA’s historical losing streak. They perceive it as a peculiarity of the price-weighted metric, which has been used for over a century. This comes at a time when the broader market continues to flourish. The S&P 500 and the tech-heavy Nasdaq Composite both recently reached record highs.
The DJIA’s extended sell-off, although seemingly alarming due to its duration, is not as severe in terms of magnitude. The average is only down around 1,582 points, or 3.5%, from its closing level on December 4. A sell-off of 10% or more is generally considered a “correction”, and the DJIA is far from that point.
The DJIA was initially established in the 1890s to reflect an average investor’s portfolio. But some argue that this methodology may be outdated, given its limited diversification and concentration on just 30 stocks.
The downturn in the DJIA is seen more as a reflection of investors’ current preference for tech stocks rather than a measure of industrial America. Despite the inclusion of top-performing megacap stocks like Amazon, Microsoft, and Apple, their collective performance has not been enough to lift the DJIA out of its slump.
Experts believe that this retreat is temporary and anticipate the Federal Reserve’s decision this week could trigger a rebound, given the current oversold market conditions.
While the DJIA’s performance may cause some alarm, it is important for investors to understand the broader market dynamics and not to overly focus on this single metric. This knowledge can help guide their investment decisions and strategies in a more informed way.
