Dow Extends Losing Streak. Up Next: the Fed.

The Dow Jones Industrial Average (DJIA) has been on a losing streak, down 18.5% year-to-date as of December 14, 2024. This decline can be attributed to several factors, including geopolitical tensions, global economic uncertainty, and the impact of the COVID-19 pandemic on global supply chains. Additionally, rising interest rates have led to a rotation out of growth stocks, including many tech companies, into value stocks, further pressuring the DJIA.

As the Federal Reserve prepares to meet in early 2025, investors will be closely watching for any indications of a change in monetary policy, which could have a significant impact on the Dow's performance. The Fed's interest rate changes significantly impact the DJIA. Historically, when the Fed raises interest rates, the DJIA tends to decline due to increased borrowing costs for businesses and consumers, which can slow economic growth and corporate earnings. Conversely, when the Fed lowers interest rates, the DJIA typically rises, as borrowing becomes cheaper, stimulating economic growth and corporate profits.

The sectors within the DJIA most sensitive to Fed policy changes are Financials and Consumer Discretionary. Financials, which account for 28% of the index, are directly impacted by interest rate changes, with banks benefiting from higher rates due to increased net interest margins. Conversely, Consumer Discretionary, comprising 13% of the DJIA, is sensitive to changes in consumer spending, which is influenced by interest rates and economic conditions. As the Fed adjusts policy, these sectors are likely to react accordingly, with Financials potentially gaining and Consumer Discretionary potentially declining.



To navigate the current market, investors should maintain a balanced portfolio, with both growth and value stocks. It is essential not to hastily sell best-of-breed companies like Amazon and Apple during market downturns, as these companies have the capability to manage challenges effectively. However, investors should remain cautious about companies like Facebook, which may face advertiser pushback and content management issues. Facebook needs to establish an internal system for content arbitration to address these challenges.



In conclusion, the Dow's recent performance can be attributed to various factors, including geopolitical tensions, global economic uncertainty, and rising interest rates. As the Fed prepares to meet in early 2025, investors will be closely watching for any indications of a change in monetary policy. To navigate the current market, investors should maintain a balanced portfolio, with both growth and value stocks, and remain cautious about companies like Facebook. By understanding the impact of Fed policy changes on the DJIA and its sectors, investors can make informed decisions and position their portfolios accordingly.