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Dow Jones Ends Second Consecutive Week in Red

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The DJIA (Dow Jones Industrial Average) fell over 0.9% in the week ending on October 4, 2019. It closed trading at $26,573.72, ending in the red for the second consecutive week. The DJIA remained volatile. Let’s take a look at what drove it lower in the past week.

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Dow Jones rose 372.68 points on Friday

The DJIA gained over 350 points yesterday, driven by gains from Apple (AAPL), Merck (MRK), and Travelers Companies Inc. (TRV). While Apple rose 2.8%, Merck and TRV returned 2.73% and 2.28%, respectively, on October 4.

The Dow Jones gained 1.4% after the September jobs report published by the Labor Department showed that 136,000 jobs were added in the US last month. Though this was lower than forecasts, it brought the unemployment rate to a 50-year low of 3.5%, according to this CNN report. The average number of jobs added per month in 2018 stood at 223,000.

The report said, “Overall, the pace of hiring has slowed considerably since 2018, when the economy added an average of 223,000 jobs per month. The September jobs report comes in the same week as several other reports that showed the US economy is slowing.”

DJIA gained on Thursday despite a slowdown 

The Dow Jones Index fell close to 350 points on Thursday in early market trading after ISM data showed a slowdown in the Services sector. The ISM (Institute of Supply Management) released the non-manufacturing PMI (purchasing managers index) on Thursday.

According to ISM, the PMI for September fell to 52.6, which was lower than estimates of 55.1 and considerably below 56.4 in August 2019. The non-manufacturing PMI was the lowest since August 2016. Despite these concerns, DJIA wiped off early losses to end the day higher.

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The Dow Jones lost 800 points in October

The DJIA closed trading at 26,078.62 on October 2, losing almost 840 points in the first two days of this month. The ISM released the manufacturing PMI on Tuesday, which indicated an acceleration of economic contraction in this industry.

The manufacturing score of 47.8 was below August’s score of 49.1 and at a 10-year low. A PMI score of below 50 indicates a contraction in the economy. Several economists have attributed the ongoing US-China trade war to the slowdown.

Several signs point to a recession

The Dow Jones has gained 13.9% year-to-date, which is driven by gains in Apple, Microsoft, Home Depot (HD), and Procter & Gamble (PG). While Apple is up 43.9%, MSFT, HD, and PG have returned 36%, 32.6%, and 34.9%, respectively, in 2019. These companies account for 18.3% of the DJIA.

Analysts and investors continue to remain cautious as recession calls are getting louder. The PMI data is one of many indicators that point to a recession. We already know that the yield curve inverted in August 2019. An inverted yield curve has preceded a recession by 12 to 24 months in the last 50 years.

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The trade war continues to weigh on the global economy. This will impact several tech and semiconductor stocks until the issue is resolved. The global automotive industry is in the midst of a slowdown as well. Also, the PMI data from Europe is far from encouraging and points to a slowdown. Besides the volatile Dow Jones, the US housing market may crash yet again.

What’s next for investors?

Several other indexes ended the last week in the red. China’s Shanghai Composite Index fell close to 1%, India’s Nifty50 was down almost 3%, and Japan’s Nikkei slumped 1.8% in the week ending on October 4, 2019.

Tech investors are likely to burn significant investor wealth in a slowdown. We have already seen stocks like Shopify (SHOP), Roku (ROKU), Alteryx (AYX), and Twilio among others lose significant market value over the last month as investors sweat over-valuations.

Is it time to move away from the market?

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