The Dow Jones Industrial Common fell 2.4% final week in a transfer that pushes this index additional under its key 50-day easy shifting common. Whereas not essentially the most broadly adopted index, the Dow has continued to evolve in order that its 30 elements extra carefully symbolize the present financial system. Amazon’s (AMZN) inclusion on the finish of February is the most recent modification, the place it joins Apple (AAPL), Microsoft (MSFT), and Salesforce (CRM) to call just some of the heavier-weighted names.

Day by day Chart of Dow Jones Industrial Common

Main this index decrease final week was a 7.4% decline in J.P. Morgan Chase (JPM), which fell following the discharge of their first quarter earnings on Friday. Whereas the corporate’s outcomes have been robust, CEO Dimon’s tepid outlook for progress going ahead pushed the inventory decrease. Among the many dangers cited by administration have been excessive inflation and the potential for the Federal Reserve to tighten financial coverage. Geopolitical dangers have been additionally talked about.

Most notable on JPM’s chart, nonetheless, was the truth that it was buying and selling at a brand new excessive in worth previous to the discharge of their report.  In different phrases, the inventory was priced for perfection, such that any trace of a doable slowing of progress pushed the inventory sharply decrease.

At the moment, we’re on the very starting of earnings season and, ought to we see an identical response to well-known firms reporting outcomes whereas their inventory is priced at a near-term excessive, we may very well be in for some robust sledding. Netflix (NFLX) is the following well-known firm as a consequence of report subsequent week, adopted by Microsoft (MSFT), Alphabet (GOOGL), and Meta Platforms (META) the next week. Every of those shares are buying and selling at near-term highs and are vulnerable to weak point amid any speak of an increase in rates of interest.

Comparative Chart of Dow, S&P 500 and NASDAQ – June 2023-Present

Above is a comparative chart of the Dow Jones Industrial Common versus the S&P 500 and the NASDAQ Composite. As highlighted, the Dow led the markets into a brand new uptrend, which started in early November. Extra just lately, a lot of these profitable shares from the Dow are actually in downtrends, after closing under their key 50-day easy shifting common.

These winners have been from a broad cross-section of sectors, akin to Industrials, Financials, and Client Discretionary, and embrace Dwelling Depot (HD) and J.P. Morgan (JPM), to call simply two. My screening confirmed the weak point that had been spreading in these sectors, as I eliminated a number of Retailers from my MEM Edge Report Urged Holdings Record over the previous a number of weeks and took off Financial institution shares earlier this week. The deterioration amongst these Discretionary, Monetary, and Healthcare shares from the Nasdaq and the S&P 500 could also be tougher to identify, given the massive variety of names of their index; nonetheless, my MEM Edge Report has been detailing the weak point for weeks now.

Most necessary presently is the truth that each the Nasdaq and S&P 500 are hovering above key assist, and you will need to protect income ought to we see a downtrend develop. Whereas rates of interest are a key determinant of investor sentiment, earnings studies have been confirmed to be extra impactful. If you would like to be saved updated on the situation of the broader markets, in addition to methods to deal with shares relying in your funding horizon, use this hyperlink right here to entry my twice weekly report for 4 weeks for a nominal payment.

Warmly,

Mary Ellen McGonagle

MEM Funding Analysis