Why is Dow Jones on a losing streak?The Dow Jones Industrial Average (DJIA) (Ticker AT: USAIND) recently experienced its longest negative streak since 2018, racking up eight consecutive sessions of declines. This downtrend began on December 4, when the index closed above 45,000 points for the first time in history. Since then, it has shown a downward trend, reflecting the volatility and fluctuations of the market in the current period. During this period, the DJIA has shown a downward trend, while other indexes such as the Nasdaq have experienced increases, reaching new all-time highs. For example, the Nasdaq rose 1.24% and closed at new all-time highs, while the S&P 500 advanced 0.38%. However, these positive closes were the result of the strong performance of a few stocks, such as Alphabet, Apple and Tesla, which set new all-time highs.
The recent drop in the Dow Jones Industrial Average (DJIA), is due to several factors that have generated uncertainty in the markets. Here are the main reasons behind this behavior:
1. Interest Rate Concerns 2.
• The persistence of high interest rates by the Federal Reserve (Fed) to combat inflation continues to negatively affect sensitive sectors, such as real estate and industrials.
• Investors fear that these rates could be prolonged, limiting economic growth.
2.Recession Fears
• Mixed economic data, such as a slowdown in consumer spending and industrial production, have fueled concerns about a possible recession in 2024.
• Although the labor market remains strong, other indicators, such as the manufacturing index, reflect weakness.
3. Impact of the Industrial Sector
• Given that the DJIA is largely comprised of industrial and consumer goods companies, any weakness in these sectors directly impacts its performance.
• Key companies in the index, such as Boeing and Caterpillar, have suffered setbacks due to global uncertainty.
4. Strength of the dollar
• The strengthening of the dollar against other currencies negatively affects DJIA companies with high international exposure, reducing the competitiveness of their products abroad.
5. Rotation to Other Indices
• Investors are favoring indices more exposed to the technology sector, such as the Nasdaq, which has had a positive performance thanks to the momentum of artificial intelligence and other technological advances.
6. Geopolitical Tensions
• Uncertainties in the Middle East, as well as trade tensions between the U.S. and China, have increased risk aversion, especially affecting global companies in the DJIA.
On the technical side, the index has had several bearish days that are reaching its last support zone near 43,300 points. If this zone is pierced, it could evolve towards the checkpoint near 42,100 points. On the other hand, the index is currently oversold at 41.72% and its mid-range crosses do not indicate a change in direction. If we look at the MACD if there has been a turn of the trend of the average of 12 crossing below the average of 26, which shows that in the short term this situation does not seem to have changed.
It is important to note that the DJIA is a price-weighted index, which means that higher-priced stocks have a more significant impact on its movement. Therefore, fluctuations in the prices of high-value stocks can significantly influence the index's performance.
For investors and analysts, this negative streak in the DJIA underscores the importance of monitoring market trends and considering factors such as index composition, global economic conditions and monetary policies that can influence stock index performance.
Ion Jauregui - Analyst ActivTrades
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