Why the Dow is in such a historic crisis and how worried you should be

The Dow Jones Industrial Average has been declining for nine consecutive days, It has its longest losing streak since February 1978. What’s going on and how worried should investors be?

First, let’s explain which stocks are causing the losses.

The biggest laggard in the 30-stock Dow was during that losing streak UnitedHealthwhich contributed to more than half of the price-weighted average decline over the past eight sessions. The insurer has plunged 20% this month alone amid a broad selloff among pharmacy benefit managers following the president’s election Donald Trump‘s promise to “cut out” pharmaceutical industry middlemen. UnitedHealth is also going through a turbulent time the fatal shooting of Brian Thompson, the CEO of his insurance unit.

And then a rotation occurs, with investors selling the cyclical names in the Dow, which originally surged after Trump’s election in November. Sherwin Williams, caterpillar And Goldman SachsAll of the stocks that typically rise when the economy improves have each fallen at least 5% in December, dragging the Dow sharply lower. These names all had a big November as they were seen as beneficiaries of Trump’s deregulation and pro-economic policies.

The Dow, largely made up of blue-chip consumer and industrial stocks, is widely viewed as an indicator of overall economic conditions. The ongoing selloff coincided with renewed concerns about a weaker economy after a small jump in jobless claims data was released last week. However, investors remain quite optimistic about the economy in 2025 and see nothing like the stagflation period of the late 1970s.

Most investors don’t take it seriously

There are many reasons to believe that the Dow’s historic losing streak is not a major concern and is simply a quirk of the price-weighted metric that is more than a century old.

First, the Dow anomaly comes at a time when the broader market is still thriving. The S&P 500 reached a new high on December 6th and is less than 1% from that level. The tech-heavy one Nasdaq Composite just hit a record on Monday.

Meanwhile, while the duration of the Dow selloff is alarming, the magnitude is not. As of midday Tuesday, the average is only about 1,582 points, or 3.5%, below the closing level on Dec. 4, when it closed above the 45,000-point mark for the first time. Technically, a sell-off of 10% or more would be considered a “correction,” and we are far from that.

The Dow was first created in the 1890s to model a regular investor’s portfolio – a simple average of the prices of all components. However, due to the lack of diversification and concentration on just 30 stocks, it may be an outdated method these days.

“The DJIA has not reflected its original intent in decades. It doesn’t really reflect industrial America,” said Mitchell Goldberg, president of ClientFirst Strategies. “The losing streak is more a reflection of investors loading up on technology stocks.”

The price-weighted nature of the Dow means it doesn’t capture the massive gains of megacap stocks such as the S&P 500 or the Nasdaq. Although Amazon, Microsoft And Apple are in the index and are all up at least 9% this month, that’s not enough to get the Dow out of the crisis.

Many traders believe the decline is temporary and that the Federal Reserve’s decision this week could be a catalyst for a recovery, especially given the oversold conditions.

“This decline will be the pause that refreshes before a reversal to the upside at year-end 2024,” said Larry Tentarelli, founder and chief technical strategist Daily Blue Chip Trend Report. “We expect buyers to come this week. … Index internals show oversold values.”

— CNBC’s Michelle Fox, Fred Imbert and Alex Harring contributed reporting.