What's Behind the Dow's Current Losing Streak - and Should Investors Be Worried?

The Dow Jones Industrial Average (DJIA) has been on a nine-day losing streak, its longest since 1978. As investors watch the blue-chip index tumble, they can't help but wonder: what's behind this slump, and should they be worried? Let's dive into the factors driving the Dow's recent performance and explore whether investors should be concerned.

UnitedHealth: The Biggest Laggard

The Dow's recent decline is largely driven by one stock: UnitedHealth Group. The insurance giant has contributed over half of the index's decline over the past eight sessions, plunging 20% this month. UnitedHealth's woes can be attributed to two main factors:

1. A broad sell-off in pharmacy benefit managers (PBMs) following President-elect Donald Trump's vow to "knock out" drug industry middlemen.
2. The fatal shooting of UnitedHealthcare CEO Brian Thompson, which has added uncertainty to the company's future.



Investor Rotation: From Cyclical Names to Tech

In addition to UnitedHealth, investors are rotating out of cyclical names that initially surged on Trump's election. Stocks like Sherwin-Williams, Caterpillar, and Goldman Sachs, which typically gain when the economy revs up, have each fallen at least 5% in December, dragging down the Dow. This rotation reflects investors' shifting preferences towards tech stocks and smallcaps.

The Dow's Price-Weighted Nature

The Dow's price-weighted nature amplifies the impact of large declines in a few stocks. While the broader market remains resilient, with the S&P 500 and Nasdaq near record highs, the Dow's focus on a limited number of large-cap stocks makes it more susceptible to movements in these names.

Should Investors Be Worried?

Despite the Dow's longest losing streak since 1978, investors should not be overly concerned. The magnitude of the decline is relatively mild, with the index down just 3.5% from its peak. Moreover, the recent losses represent some profit-taking after steep gains in recent weeks, along with a modest reset in expectations around the incoming Trump administration's policies.

The upcoming Federal Reserve decision could serve as a catalyst for a rebound, as investors await clarity on interest rates and monetary policy. In the meantime, investors should maintain a long-term perspective and avoid overreacting to short-term market fluctuations.

In conclusion, the Dow's current losing streak is primarily driven by a few factors, including UnitedHealth's decline, investor rotation, and the index's price-weighted nature. While the Dow's performance may be cause for concern, the broader market remains strong, and investors should not be overly worried. As always, it's essential to maintain a diversified portfolio and stay informed about market trends and developments.