Jamie Spencer
The Dow Jones Industrial Average faced the possibility of entering the record books on Tuesday, flirting with its first nine-day losing streak since the 1970s. The 30-stock index dropped 273 points, or 0.6%, as investor concerns surrounding interest rates, inflation, and political uncertainties weighed on nontechnology stocks.
Despite the Dow’s weakness, the broader market showed resilience. The S&P 500 hit a record high earlier this month and sits less than 1% below that level, while the Nasdaq Composite set a new record on Monday, fueled by gains in major tech stocks.
Why the Dow is Falling While Tech Soars
The Dow’s struggles stem from a sector rotation into technology and away from traditional, old-economy stocks that dominate the index. These stocks rallied in November following Donald Trump’s reelection but have since lost momentum as traders reassess their prospects under another Trump presidency.
David Russell, global head of market strategy at TradeStation, explained the shift: “Wall Street is waking up to the fact that a Trump presidency might not be as great for stocks as some people hoped. Financials and industrials jumped on his win but now may have to face higher rates and trade uncertainties, and healthcare faces its greatest political risks in recent memory.”
Interestingly, even Nvidia, a recent tech addition to the Dow, has struggled despite broader tech gains. Nvidia entered correction territory on Monday, showing that even in the booming tech sector, the momentum isn’t universal.
Fed Decision Looms: Investor Jitters Rise
Much of the current market tension revolves around the Federal Reserve’s upcoming interest rate decision. Traders are pricing in a 97% chance of a quarter-point rate cut, according to CME Group’s FedWatch Tool. However, some investors worry that cutting rates could fuel a stock market bubble or exacerbate inflationary pressures.
Jeff Kilburg, CEO of KKM Financial, noted how this uncertainty has amplified tech’s dominance: “The Mag 7 performance chasers are taking one last sprint towards 2024 year-end so far in December, leaving the rest of the S&P 500 stocks on the sidelines and kicking the Dow to the curb.”
Strong Retail Sales Add to Rate Concerns
Tuesday’s better-than-expected retail sales data added another layer of complexity to the Federal Reserve’s decision-making process. Consumers continued to spend robustly in November, despite inflationary pressures. Retail sales rose 0.7% for the month, accelerating from October’s upwardly revised 0.5% gain and surpassing expectations of 0.5%.
A 2.6% jump in motor vehicle and parts sales led the gains, with online shopping also rising 1.8%. However, some categories struggled, with miscellaneous sales falling 3.5%.
On an annual basis, retail sales increased by 3.8%, well ahead of the 2.7% rise in the consumer price index (CPI). This data signals that consumer spending remains strong, adding to fears that the Fed may be acting prematurely by cutting rates and risking renewed inflation.
The Dow’s Anomaly and What Lies Ahead
While the Dow’s slide may appear alarming, it’s not reflective of the entire market’s health. The S&P 500 and Nasdaq have demonstrated strength thanks to a continued focus on technology stocks. However, the divergence highlights the challenges faced by sectors outside of tech, including financials, healthcare, and industrials.
Marking the recent shift, Tesla climbed higher again on Tuesday, while Broadcom dropped 3.6%, further illustrating the uneven performance within the market.
Investor Takeaway: Caution and Uncertainty
As the Dow teeters on the edge of a historic losing streak, investors are grappling with conflicting signals. Strong consumer spending and a booming tech sector contrast with concerns over higher interest rates, inflation, and political uncertainties heading into 2024.
For now, the Federal Reserve’s decision on Wednesday remains the focal point, with markets eager for clarity on monetary policy. While the broader market stays near record highs, the Dow’s performance serves as a reminder of the challenges ahead for nontechnology sectors in an increasingly tech-driven market.
