This year the Dow Jones Index entered a correction after dropping by more than 13% since its peak. This index tracks 30 blue chip companies and was recently trading at $39,000. It has formed its first death cross in three years. The article below examines three main reasons behind its collapse and the performance of its stock.
Dow Jones Index: 3 Reasons for the Crash
The Dow Jones Index is down this year for three reasons. The Federal Reserve has been more aggressive this year, and that has contributed to the Dow Jones Index’s decline. The Federal Reserve cut rates by three in the past year and has predicted two more cuts this year despite a slowing economy.
The Fed has been announcing that it is ready to act if there was a drastic slowdown in the economy.
Donald Trump has been studying his power to dismiss Jerome Powell as Fed chairman. This would be unprecedented, and raise concerns about the independence of the Fed.
Due to perceived Fed independence, US assets such as the US dollar and stocks have historically performed well.
The Dow Jones Index is also down due to the trade war. This could push the US economy into a recession. Concerns about the US economy continuing to deteriorate have been raised by the base tariff of 10% and the rate of 145% from China. Analysts predict that earnings of corporations will be affected.
The Dow Jones is a declining stock due to the exposure it has to technology. The Dow Jones holds companies such as Microsoft, Apple and Salesforce. These are good companies but there’s a danger that their growth will be hampered as the AI bubble bursts.
Dow Jones Index Stocks Performance
The Dow Jones Industrial Average has declined in most cases this year. Some all-weather companies have performed well, however. This is because they were less affected by US tariffs against other countries.
The stock of Coca-Cola has increased by 17% in the past year due to its success on all markets. The recession and stagflation will not make customers stop buying soda.
Verizon’s stock price has risen 10% in the past year. Johnson & Johnson’s stock, IBM’s stock, McDonald’s’, Amgen’s share, Travelers’, Visa’s and Walmart’s all have risen over 4%. All of these companies, except IBM, are more resistant to tariffs.
Nike has had the worst Dow Jones performance this year, with a 27% drop. The company is facing intense competition from On Holdings, Adidas and Under Armour. The management is also taking longer than expected to bring the company back to life.
This year, tech firms such as Salesforce, NVDIA and Apple have fallen by more than 22%. The technology industry’s woes and perceived overvaluation are to blame for this decline.
Walt Disney, Caterpillar American Express and Honeywell International are among the other Dow Jones laggards.
The Dow Jones will be influenced by the Fed and Donald Trump in the future. The Dow Jones index will benefit from a sign that the Fed has decided to reduce interest rates.
The index will also be positively affected by the beginning of talks with other countries. This is especially true for China.
As Trump’s tariffs are not included in the earnings, the ongoing earnings season won’t have a major impact on Dow Jones or other US indexes.
The Dow Jones, as well as other US indexes such the S&P 500 or Nasdaq, have always recovered from corrections.
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