The old proverb about the weather in March describes how the Dow did in the month of May: “In like a lion, out like a lamb.” Or maybe we should rephrase that to, “In like a bull, out like a bear?”
The
got off to a hot start this month, surging to a record high of 40,000. It topped that milestone for the first time on May 16 and closed above it a day later. The Dow hasn’t been back there since. In fact, it has tumbled nearly 1,900 points, a drop of more than 4.7%, in the past two weeks. That includes Thursday’s 330-point slide. The Dow has given up nearly all its year-to-date gains as well. It’s now up just 1.1% in 2024.
It seems the concerns that weighed on investors’ minds in April have returned. Recall that stocks tumbled that month because of worries about inflation and spiking long-term bond yields.
But then the Federal Reserve—perhaps unintentionally—came to the rescue. Its latest policy meeting and Chair Jerome Powell’s May 1 news conference spurred optimism about a potential Fed interest-rate cut as early as September. That helped push the Dow to new highs on May 17—before fears about how sticky inflation is and the possibility of higher-for-longer rates re-emerged midway through the month.
Interestingly though, that hasn’t led to a massive increase in volatility for the overall market. The investor angst shows itself mostly in the Dow. The VIX—Wall Street’s so-called ”fear gauge,” which measures
volatility—is up a bit, but not dramatically so. Its rise from about 12 to a little more than 14 in the past two weeks is hardly a sign of investors running for the hills.
Advertisement – Scroll to Continue
The S&P 500 has indeed pulled back, but not nearly as much as the Dow. It’s down only1.3% since May 17, but has still risen 4% for the entire month. That puts the S&P 500 on track to have its sixth-best May performance since 1950, according to Adam Turnquist, chief technical strategist with LPL Financial.
And the
is still higher than where it was two weeks ago. Thank
and its amazingly strong earnings. (You can’t spell Nvidia without an A and an I.)
So what’s going on with the Dow? It’s important to remember that it has only 30 companies in it. It’s a much narrower sliver of the overall market than the S&P 500, Nasdaq, or small-cap barometer Russell 2000. That means lousy performances for just a handful of companies can drag the Dow lower.
That’s definitely been the case this month with several prominent Dow stocks.
implosion on Thursday—the stock plunged 20% after the company after it issued a weak outlook in its latest earnings report—is just the most recent (and most dramatic) example of how one bad Dow apple can spoil the whole bunch. (Speaking of apples,
Advertisement – Scroll to Continue
hasn’t hurt the Dow this month. It’s up slightly since May 17 and 12% for all of May.)
There’s also the fact that the Dow is a price-weighted average and isn’t weighted by market cap. That means that Apple, with a stock price of about $191, doesn’t have as much of an impact on the blue chip index as Salesforce, with a price of around $218 even after it was rocked on Thursday.
Other high-price Dow stocks have also done poorly in May.
the biggest weighting in the Dow, accounting for just over 8% of the average due to its $481 stock price, has slid 8% since mid-May due to concerns about future Medicaid premium payments.
Several other pricier Dow stocks, such as
Amgen
,
Visa
,
and
Boeing
,
Advertisement – Scroll to Continue
have also fallen in recent weeks due to macroeconomic concerns and, in some cases, company-specific issues.
So investors shouldn’t necessarily be too concerned about the Dow’s recent woes given that the broader market is holding up just fine.
Write to Paul R. La Monica at paul.lamonica@barrons.com
Read More: Why the Dow’s Topsy-Turvy May Isn’t a Sign of a Broader Stock Market Panic