Here’s why the Dow just had its worst decline in 50 years

On By Littum

Key takeaways

  • The Dow Jones Industrial Average hit its longest daily losing streak in 50 years as it fell for a tenth straight session on Wednesday.
  • Wednesday’s decline came after the Federal Reserve scaled back its forecast for rate cuts amid uncertainty about the path of inflation in the coming year.
  • The declines in the previous nine days came after the killing of a UnitedHealth Group executive put a spotlight on the health care business, which weighed on shares in the sector and subsequently the price-weighted Dow.
  • Nvidia, one of the Dow’s newest members, has also followed the market, pulling down the index in recent weeks.

The Dow Jones Industrial Average fell on Wednesday after falling in each of the previous nine sessions, snapping the longest stretch of daily losses since 1974.

The blue-chip index is down 6% during its latest losing streak. The S&P 500 and Nasdaq Composite are down a relatively modest 3.5% and 1.8%, respectively, despite having slightly more painful Wednesday routines.

So why have these three major indexes, each containing the stocks of some of America’s largest companies, diverged recently?

UnitedHealth slide after CEO Killing weighs on Dow

UnitedHealth Group ( UNH ) shares lost more than 20% of their value in the nine sessions following Dec. 4, the day the chief executive of its insurance division was fatally shot in an attack that has refocused the health care industry in America. It was also the last day the Dow closed higher.

Since the shooting, lawmakers have introduced legislation to force the dissolution of certain large health care companies, and President-elect Donald Trump has vowed to “cut out the middleman,” referring to pharmacy benefit managers (PBMs), which negotiate drug prices on behalf of insurers . , employers and public health plans.

Shares of CVS Health ( CVS ) and Cigna ( CI ), which like UnitedHealth both operate insurance companies and PBMs, fell 24% and 20%, respectively, between Dec. 4 and Tuesday’s close.

Before its decline, UnitedHealth had a share price of $610, making it the most expensive stock in the Dow, and thus the index’s most influential component. That’s because the Dow is price-weighted, meaning the higher a company’s share price, the greater its impact on the index. The S&P 500 and Nasdaq, meanwhile, are capitalization-weighted and give more leverage to companies with larger market capitalizations.

Nvidia’s addition to the Dow also drags the index lower

UnitedHealth hasn’t been the only Dow laggard this month. Nvidia (NVDA), which joined the blue-chip index in early November, has fallen in all but one trading session since Dec. 4. The stock, possibly weighed down by reports of an antitrust investigation in China and the rise of its competitor. Broadcom (AVGO), entered into a technical correction earlier this week.

The Dow was on course to snap its losing streak on Wednesday before the Federal Reserve’s interest rate forecasts sparked a broad sell-off. Nvidia shares fell 1.1% on Wednesday after trading more than 3% higher midday. UnitedHealth Group was the only component of the 30-stock Dow to close in the green, rising 2.9% along with peers CVS and Cigna.

Update – December 18, 2024: This article was updated to reflect stock prices and index levels as of Wednesday’s market close.