Dow Jones Industrial Average Sees Four-Week Losing Streak

Getty Images

Getty Images

Key Takeaways:

  • The Nasdaq

    Composite led the selloff as investors shun tech stocks
  • Pandemic plays are losing popularity despite the Omicron threat
  • Market leadership appears to be changing as investors hop a flight to quality

The Nasdaq Composite (COMP:GIDS) led the markets lower on Friday, falling more than 1.92%. As you might expect with the Nasdaq leading the fall, the information technology sector was the worst performing sector. The Technology Select Sector Index ($IXT) closed 1.65% lower. The Dow Jones Industrial Average ($DJI) did much better than the Nasdaq by closing 0.17% lower. Despite the stronger day, the Dow has actually strung together four down weeks in a row by falling 2,000 points, more than 5% from its November peak.  

The VIX (Cboe Market Volatility Index) traded back to January of 2021 levels, reaching as high as the 35 mark on Friday before dropping back to the 30 level. Fear and uncertainty appear to be growing among investors who are trying to digest a worse-than-expected jobs report that came out Friday morning. The economy was expected to add 550,000 jobs in November but only added 210,000. Despite the lackluster job growth, it wasn’t bad enough for the Fed to be unlikely to back off its tapering plans.

Along with the technology stocks, gaming stocks were hit hard. DraftKings (DKNG) was down the most at nearly 9%. However, Penn National Gaming

(PENN), Caesars (CZR), and Scientific Games

(SGMS) were all about 4% lower on the day.

Passing Over Pandemic Plays

Gaming stocks were popular pandemic stock plays when people were stuck at home and looking for something to do. These are the types of stocks that appear to be getting hit despite the oncoming threat of the Omicron variant. Even “meme” stocks like AMC (AMC) and GameStop

(GME) that epitomized pandemic speculations plays traded on Friday as low as 14% and 11% respectively. Additionally, Peloton (PTON), Zoom (ZM), and Adobe

(ADBE) were very popular when more people were working from home, but they are now selling off as investors take profits and start focusing on value stocks.  

At the height of the pandemic, social media played a big part in people’s lives, but now people seem to be using the platforms less. Social media stocks are getting hit with Meta (FB) falling 1.14%, Snap (SNAP) trading down 2.34%, Pinterest (PINS) dropping 4.69%, and Twitter (TWTR) falling 1.36%. In contrast, traditional media companies were up on Friday, with ViacomCBS (VIAC) trading 5.11% higher, Discovery

(DISCA) climbing more than 3.18%, and Fox (FOX) rising 1.91%. The difference is that these companies have lower price-to-earnings, price-to-book, and other valuation ratios.

Older, more traditional companies that have more appealing valuations appear to be attracting more investors. Some examples are Walgreens Boots (WBA

) rising more than 4.28%, Walmart

(WMT) rising 1.51%, Procter & Gamble

(PG) up about 1.78%, Tyson Foods

(TSN) climbing 2.24%, Campbell Soup

(CPB) rallying 1.51%, and General Mills

(GIS) closing 2.18% higher.

Flight to Quality

On top of valuations, when volatility increases and stocks sell off, it’s common to see investors start moving into old “Blue Chip” companies. These are usually big companies that have been around for a long time. They also have a history of navigating hard times. This is one reason why there was such a discrepancy between the performance of the Dow Jones Industrial Average and the Nasdaq on Friday. The Dow is made up of 30 mega-cap stocks, and most of them have been around a long time. The Nasdaq is heavily weighted to technology stocks that are more growth oriented.

Additionally, many investors moved into what are called defensive stocks. Not to be confused with defense stocks that make military equipment, defensive stocks are those that tend to perform better during sluggish or bearish markets. They include sectors like utilities, consumer staples, and health care. These are goods and services that consumers need no matter what the economy is doing. In fact, the Consumer Staples Select Sector Index ($IXR), Utilities Select Sector Index ($IXU), and the Health Care Select Sector Index ($IXV) were the top-performing sectors on Friday.

CHART OF THE DAY: DROPPING THE BASE. The Consumer Staples Select Sector Index ($IXR—left), the … [+] Utilities Select Sector Index ($IXU—center), and the Health Care Select Sector Index ($IXV—right) have been underperforming the S&P 500 index but have been showing strength under examination of their respective relative strength indicators. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform.

Changing Leadership

Market leadership changing can cause a lot of volatility as the top-performing stocks start seeing investors scale back or leave and move into other sectors and groups. Stocks like Meta (FB), Amazon

(AMZN), Appl

e (AAPL), Alphabet (GOOGL), Netflix

(NFLX), and Tesla

(TSLA) have been market leaders for a long time but are experiencing some selling. That doesn’t mean that these are bad companies or that they are no longer good stocks. It just means that some investors see them as overvalued.

The fourth quarter has been a bit hectic—it started strong in energy, materials, and the financial sectors. Then consumer discretionary and technology came alive for a time. Recently, oil prices have dropped and taken yields with them and really muddied the picture. As investors change their portfolios in preparation for the new year, new leadership among the sectors will rise.

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