Why the Dow is in such a historic panic and how worried you should be | Real Time Headlines

this Dow Jones Industrial Average It has fallen for nine consecutive days. On track for longest losing streak since February 1978. What is going on and how should investors be concerned?

First, let’s explain which stocks contributed to the losses.

Among the 30 stocks on the Dow Jones Index, the worst performer in this losing streak is UnitedHealthwhich contributed more than half of the decline in the price-weighted average over the past eight trading days. Pharmacy benefit managers have been widely sold off after President-elect Trump vowed to “eliminate” the middlemen in the pharmaceutical industry, with the insurer plunging 20% ​​this month alone. UnitedHealth Group is also going through a tumultuous time The fatal shooting of Brian Thompson, CEO of its insurance arm.

Investors then began selling off cyclical stocks in the Dow that initially emerged on Trump’s reelection. Sherwin-Williams Company, caterpillar and Goldman SachsAll stocks that typically rise when the economy recovers fell at least 5% in December, weighing heavily on the Dow. These names are all having a big November as they are seen as beneficiaries of Trump’s deregulatory and pro-economic policies.

The Dow, which consists primarily of blue-chip consumer discretionary and industrial companies, is widely seen as an indicator of overall economic conditions. The duration of the sell-off does coincide with renewed concerns about economic weakness, given the modest rise in jobless claims last week. However, investors remain quite optimistic about the economy in 2025, believing that there will not be a situation like the stagflation period of the late 1970s.

Most investors dismiss this

There are many reasons to believe that the Dow’s historic streak of declines is not a cause for significant concern, but simply a quirk of the price-weighted indicator that has existed for more than a century.

First and foremost, the Dow’s anomaly comes at a time when the broader market is still booming. this S&P 500 Index It hit a new high on December 6 and is currently less than 1% away from that level. High-tech Nasdaq Index The record was just set on Monday.

Meanwhile, while the duration of the Dow selloff is shocking, the magnitude is not. As of noon Tuesday, the moving average was down only about 1,582 points, or 3.5%, from its closing price on Dec. 4, when the index closed above the 45,000 mark for the first time. Technically, a selloff of 10% or more would qualify as a “correction,” but we’re still far from that.

The Dow Jones Index was originally created in the 1890s to model the average investor’s portfolio – a simple average of the prices of all its constituent stocks. But given its lack of diversification and concentration on just 30 stocks, this approach may be outdated today.

“The Dow Jones Industrial Average has not reflected its original intent for decades. It is not a true reflection of American industrialization,” said Mitchell Goldberg, president of Customer First Strategies. “Its losing streak is more a reflection of how investors are buying into tech stocks.”

The price-weighted nature of the Dow means it can’t reap the huge gains from large-cap stocks like the S&P 500 or Nasdaq. Although Amazon, Microsoft and apple While these companies are all in the index and have all gained at least 9% this month, it hasn’t been enough to pull the Dow out of its funk.

Many traders believe the pullback is temporary and that this week’s Federal Reserve decision could be a catalyst for a rebound, especially given the oversold conditions.

“This pullback will be a refreshed pause before a reversal higher in 2024,” said Larry Tentarelli, chief technical strategist and founder. Blue Chip Daily Trend Report. “We expect buyers to move in this week…indexes are showing oversold readings internally.”

—CNBC’s Michelle Fox, Fred Ebert and Alex Harling contributed reporting.