Traders work on the floor of the New York Stock Exchange on December 10, 2024.
Brendan McDiarmid | Reuters
The Dow Jones Industrial Average has fallen for nine consecutive days, heading for its longest losing streak since February 1978. What’s going on and how concerned should investors be?
First, let’s explain which stocks are causing losses.
United Health has been the biggest laggard among the Dow 30 stocks during this losing streak, contributing to more than half of the weighted average decline over the past eight periods. The company has plunged 20% this month alone amid a heavy sell-off in pharmacy benefit management companies after President-elect Donald Trump vowed to “cut out” middlemen in the pharmaceutical industry. UnitedHealth is also going through a tumultuous time, with its insurance CEO Brian Thompson being shot and killed.
And a rotation is occurring, with investors selling Dow Jones Industrial Average stocks that first emerged when President Trump was elected in November. Sherwin-Williams, Caterpillar and Goldman Sachs, all stocks that typically rise when the economy is improving, each fell at least 5% in December, significantly dragging down the Dow. All of these names were seen as beneficiaries of President Trump’s deregulatory and pro-economy policies, which saw big gains in November.
The Dow Jones Industrial Average is comprised primarily of blue-chip consumer staples and industry stocks and is widely viewed as a proxy for overall economic conditions. The prolonged decline coincided with renewed concerns about economic weakness following a modest rise in jobless claims announced last week. However, investors remain very optimistic about the economy in 2025 and don’t expect anything like the stagflation period of the late 1970s.
most investors ignore
There are many reasons to think the Dow’s historic losing streak is not a major cause for concern, but rather just a quirk of a price-weighted index that is more than 100 years old.
First and foremost, the Dow anomaly occurs at a time when the overall market is still buoyant. The S&P 500 hit a new high on Dec. 6, but remains less than 1% from that level. The tech-heavy Nasdaq Composite Index just hit its all-time high on Monday.
On the other hand, while the length of the Dow’s decline is alarming, its magnitude is not. As of noon Tuesday, the average was down only about 1,582 points, or 3.5%, from its closing level on Dec. 4, when it closed above the 45,000 mark for the first time. Technically speaking, a decline of more than 10% would be considered a “correction,” but we are far from that.
The Dow was first created in the 1890s to model a typical investor’s portfolio, a simple average of the prices of all constituent stocks. However, given the lack of diversification and concentration in just 30 stocks, it may be an outdated technique today.
“The DJIA hasn’t reflected its original intent for decades. It doesn’t really reflect industrial America,” said Mitchell Goldberg, president of ClientFirst Strategies. “Rather, that losing streak reflects investors gobbling up tech stocks.”
The Dow’s price-weighted nature means it doesn’t capture the huge gains from mega-cap stocks like the S&P 500 or Nasdaq. Amazon, Microsoft and Apple are all in the index and are all up at least 9% this month, but not enough to pull the Dow out of its funk.
Many traders believe this pullback is temporary and that the US Federal Reserve’s decision this week could be the catalyst for a rebound, especially given the oversold conditions.
Larry Tentarelli, founder and chief technical strategist at Blue Chip Daily Trend Report, said: “This pullback will be a refreshing pause before a reversal and rally towards a 2024 close.” ” he said. “We expect buyers to come this week.…The index internal index is showing oversold conditions.”
—CNBC’s Michelle Fox, Fred Imbert and Alex Harring contributed reporting.
