Dow Jones Industrial Average Sees Four-Week Losing Streak

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key takeaways:

  • Nasdaq
    NDAQ
    Investors shunned tech stocks, led by overall selloff
  • Pandemic dramas losing popularity despite Omicron threat
  • Market leadership is changing as investors expect quality flight

The Nasdaq Composite (COMP: GIDS) led the market decline on Friday, falling more than 1.92%. As you might expect, with the Nasdaq leading the decline, the information technology sector was the worst-performing sector. The Technology Select Sector Index ($IXT) closed down 1.65%. The Dow Jones Industrial Average (DJI) outperformed the Nasdaq, closing 0.17% lower. Despite the strong day, the Dow has actually remained together for four consecutive weeks, falling 2,000 points, up more than 5% from its November peak.

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The VIX (Cboe Market Volatility Index) was trading back at January 2021 levels, revisiting the 30 level before reaching 35 levels on Friday. Fear and uncertainty are mounting among investors trying to digest a worse-than-expected jobs report that emerged on Friday morning. The economy was expected to add 550,000 jobs in November, but only 210,000 were added. Despite weak job growth, it wasn’t bad enough for the Fed to be unlikely to roll back its slim plans.

Along with technology stocks, gaming stocks also suffered heavy losses. DraftKings (DKNG) was the bottom most at around 9%. However, Penn National Gaming
pen
(PENN), Caesar (CZR), and Scientific Games
SGMS
(SGMS) were all down about 4% on the day.

go through the dramas of the pandemic

Gaming stocks were the popular pandemic stock play when people were stuck at home and looking for something to do. These are the kinds of stocks that seem to be taking a hit despite the impending threat of the Omicron variant. Also “meme” stocks like AMC and Gamestop
GME
(GME), which is epitomized by pandemic speculation, traded as low as 14% and 11%, respectively, on Friday. Additionally, Peloton (Pton), Zoom (ZM), and Adobe
adbe
(ADBE) were very popular when more people were working from home, but they are now sold out as investors take profits and begin to focus on value stocks.

At the peak of the pandemic, social media played a big role in people’s lives, but now people seem to be using the platform less. Among social media shares, Meta (FB) declined 1.14%, Snap (SNAP) lost 2.34%, Pinterest (PINS) 4.69% and Twitter (TWTR) lost 1.36%. In contrast, traditional media companies were up on Friday, with ViacomBS (VIAC) trading up 5.11%, according to Discovery.
Disc
(DISCA) is up over 3.18%, and Fox (FOX) is up over 1.91%. The difference is that these companies have lower price-to-earnings, price-to-book and other valuation ratios.

Older, more traditional companies with more attractive valuations seem to attract more investors. Some examples are Walgreens Boots (WBA .)
wba
) growing over 4.28%, Walmart
wmt
(WMT) rising 1.51%, Procter & Gamble
PG
(PG) up about 1.78%, Tyson Foods
TSN
(TSN) 2.24% climb, Campbell Soup
cpb
(CPB) 1.51%, and General Mills Rally
GIS
(GIS) closed 2.18% higher.

flying for quality

On top of valuations, when volatility rises and stocks sell out, it’s common to see investors turn to older “blue chip” companies. These are usually large companies that have been around for a long time. He also has a history of navigating tough times. This is one reason why the performance of the Dow Jones Industrial Average and the Nasdaq varied so much on Friday. The Dow is made up of 30 mega-cap stocks, and most of them have been around for a long time. The Nasdaq is heavily weighted on technology stocks that are more growth-oriented.

Additionally, many investors buy what are called defensive stocks. Not to be confused with defense stocks that make military equipment, defensive stocks are those that tend to outperform during dull or bearish markets. These include sectors such as utilities, consumer staples and health care. These are goods and services that consumers do not need, regardless of what the economy is doing. In fact, the Consumer Staples Sector Index ($IXR), the Utilities Select Sector Index ($IXU), and the Health Care Select Sector Index ($IXV) were the top performing sectors on Friday.

change leadership

Changing market leadership can cause a lot of volatility as top-performing stocks begin to retreat or leave investors and move to other sectors and groups. Stocks like Meta (FB), Amazon
AMZN
(AMZN), Applied
AAPL
E (AAPL), Alphabet (GOOGL), Netflix
NFLX
(NFLX), and Tesla
TSLA
(TSLA) has been the market leader for a long time, but is experiencing some sell-off. It doesn’t mean that these are bad companies or that they are no longer good stocks. This simply means that some investors see them as overvalued.

The fourth quarter has been a bit busy — it started off strong in the energy, materials and financials sectors. Then consumer discretionary and technology came alive for a time. Lately, oil prices have fallen and yields have taken with them and the picture has really gotten worse. As investors change their portfolios in preparation for the new year, new leadership will emerge across sectors.

TD Ameritrade® Commentary for educational purposes only. Member SIPC.

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