Dow's Historic Slump: A Tale of Two Markets

The Dow Jones Industrial Average (DJIA) has been on a historic losing streak, with Tuesday, December 17, 2024, marking its ninth consecutive day of declines. This is the longest losing streak for the DJIA since February 1978, raising concerns among investors about the state of the market. However, a closer look at the broader market reveals a more nuanced picture.



The DJIA's recent performance is not indicative of a broader market downturn. While the DJIA closed lower by 0.6% on Tuesday, the S&P 500 and the Nasdaq Composite also ended the day in the red, but their losses were more modest, at 0.39% and 0.32% respectively. This discrepancy can be attributed to the DJIA's price-weighted nature, which makes it more susceptible to the performance of its individual components.



The DJIA's underperformance relative to the broader market highlights the importance of sector allocation and diversification in managing risk. The DJIA's composition, which includes fewer tech stocks, has contributed to its underperformance. Meanwhile, tech stocks, particularly those focused on artificial intelligence, have been a significant driver of market performance this year.

Nvidia, a leading AI chipmaker, has been a standout performer, gaining over 170% this year. Its dominance in the AI chip market, with an 80% share, has fueled triple-digit revenue and profit growth in recent quarters. Despite concerns about rising interest rates, investors should not sell best-of-breed tech companies like Nvidia, Amazon, and Apple, as they are built to last and have strong management.



The Dow's recent slump is more a reflection of investor preferences than a sign of economic trouble. The DJIA's losing streak is primarily due to a few key sectors and stocks, such as UnitedHealthcare Group and the energy sector. Meanwhile, tech stocks, led by AI, have remained resilient, with the Nasdaq still on fire.

In conclusion, the Dow's historic slump is not a harbinger of a broader market downturn. Instead, it is a reflection of investor preferences and the DJIA's composition. Tech stocks, particularly AI-related ones, have been a significant driver of market performance this year. As investors continue to rotate into growth stocks, the Dow's underperformance may persist. However, the broader market remains strong, and investors should continue to monitor sector-specific trends and company-specific fundamentals to make informed investment decisions.