Dow Looks to Snap Longest Losing Streak Since 1978 with Fed Decision on Deck

The Dow Jones Industrial Average (DJIA), a widely followed stock market index, has been on a losing streak since February 2022, marking its longest losing streak since the 16-month decline from August 1978 to December 1979. As of November 2022, the DJIA has declined for 15 consecutive months, losing 19.70% of its value. This prolonged decline has raised concerns among investors about the index's future trajectory and potential for a reversal.



Investor positioning and sentiment have shifted significantly during this period. The market has witnessed a rotation from growth stocks to value stocks, with investors favoring stable, predictable investments over more volatile, high-growth equities. This shift is evident in the performance of companies like Morgan Stanley, which has transformed into a stable, profitable bank under the leadership of James Gorman, focusing on wealth management and consistent earnings.

Several indicators suggest a potential reversal in the DJIA's fortunes. First, the index's price-weighted nature means it is not capturing the massive gains from megacap stocks as well as the S&P 500 or the Nasdaq. Although Amazon, Microsoft, and Apple are in the index and are all up at least by 9% this month, it's not enough to pull the DJIA out of its funk. Additionally, the Dow's price-weighted nature makes it more susceptible to declines in large-cap stocks, which have been underperforming relative to small-caps and mid-caps recently.

Second, the DJIA's constituents are showing oversold readings, indicating a potential buying opportunity. Index internals are signaling that the market is due for a pause that refreshes before a reversal higher. Many traders believe the retreat is temporary and this week's Federal Reserve decision could be a catalyst for a rebound, especially given the oversold conditions.

Lastly, the DJIA's constituents are a mix of cyclical and secular growth stocks, with some companies facing headwinds from geopolitical tensions and labor market dynamics. However, the index's components also include companies with robust management and enduring business models, which can navigate these challenges and deliver consistent growth.

In conclusion, while the DJIA's recent decline has raised concerns among investors, several indicators suggest a potential reversal in the index's fortunes. The DJIA's price-weighted nature, oversold readings, and the mix of cyclical and secular growth stocks in its constituents all point to a potential snap in the DJIA's longest losing streak since 1978. Investors should monitor the Federal Reserve's decision this week and the broader market sentiment for signs of a potential reversal in the DJIA's fortunes.