The Dow Jones Industrial Average failed to extend its sizzling summer winning streak to a 14th session on Thursday — what would have been the longest stretch of consecutive gains for the average since June 14, 1897.
That means the blue-chip gauge concluded its winning stretch on Wednesday with 13 straight sessions in the green. It was the longest such stretch since January 1987.
See: Dow’s historic winning streak is over. Here are the stocks that helped make it happen.
But what, if anything, does the Dow’s sprint higher tell investors about how stocks’ might perform over the next year? Generally speaking, the index was higher one year later after rising for 12 days or more, according to Dow Jones Market Data. It was also generally higher one month and three months later.
Unfortunately the sample size here is pretty limited: there have only been five such streaks, including the current one, since the late 19th Century.
In the blue-chip gauge was 9.4% higher one year later, on average. But there has been at least one notable exception. The Black Monday market crash, which saw the Dow drop more than 22% in a single day, occurred nine months after the 13-day streak that ended in January 1987. One year later, the index was 10.7% lower.
There is another potential problem for investors trying to make the case that strength will inevitably beget strength. The Dow narrowly missed a 12-day winning streak during the month of July 1929, when it climbed for 11 days through July 8, 1929, according to Dow Jones Market Data. This was back when the New York Stock Exchange still offered U.S. stock trading on Saturdays. Three months later, the U.S. stock market collapsed, ushering in the start of the Great Depression.
The fact that lengthy Dow winning streaks occurred in both 1929 and 1987 means there’s “something for everyone if you want to play the analogy game,” said Jonathan Krinsky, chief technical strategist at BTIG, in a Wednesday research note.
It’s also notable that none of the 12- or 13-day streaks, when they ended, marked the end of the rally. Of course, 1929 and 1987 did see historic crashes later in the year, Krinsky added.
A look at when Dow winning streaks occurred relative to periods of economic recession in the U.S. could lead to a similar conclusion.
While the blue-chip gauge’s gains have usually occurred during periods of economic strength, that hasn’t always been the case.
Since 1950, there have been 25 Dow winning streaks of at least 9 days, excluding the current one, according to data compiled by eToro’s U.S. equity strategist Callie Cox. Only three of those occurred either during a recession, or the year before one would begin.
What’s more, a 12-day winning streak that concluded on Dec. 7, 1970 occurred just as a recession was ending, according to data from the National Bureau of Economic Research, the official arbiter of U.S. business cycles.
Of course, past performance is no indicator of future success. There are signs that ebbing inflation could stall with commodity prices rising once again while last year’s record levels move out of the comparison window. And U.S. stocks tumbled into the red late Thursday following a sudden surge in long-dated Treasury yields, with the 30-year yield
TMUBMUSD30Y,
rising back above 4%. Bond yields move inversely to prices.
See: Why U.S. stocks and bonds stumbled on talk of a Bank of Japan policy tweak
Federal Reserve Chai Jerome Powell said that he doesn’t expect inflation to retreat back to the central bank’s 2%r until 2025 during a Wednesday press conference, after the central bank hiked its benchmark policy rate by 25 basis points.
“The Fed is still determined to get inflation back down to 2%, and that could mean that rates stay around these levels until something breaks,” Cox said in emailed commentary.
Despite it’s historic run, the Dow has continued to lag other major U.S. equity indexes.
Perhaps the biggest issue facing the blue-chip gauge, as opposed to the S&P 500 index and Nasdaq Composite, is that the Dow isn’t nearly as heavily weighted toward the so-called Big Seven U.S. technology giants that have powered much of this year’s stock-market rally, even prompting the Nasdaq stock exchange to reduce their weightings in the Nasdaq-100
NDX,
to combat overconcentration risks after their market capitalization ballooned thanks to the artificial-intelligence craze.
Of the Big Seven — a term that refers to Microsoft Corp.
MSFT,
Apple Inc.
AAPL,
Alphabet Inc. (both Class A
GOOGL,
and Class C
GOOG,
shares), Nvidia Corp.
NVDA,
Amazon.com Inc.
AMZN,
Tesla Inc.
TSLA,
and Meta Platforms Inc.
META,
— only Microsoft and Apple are Dow constituents. And because the Dow is weighted by share price, insurance giant UnitedHealth Group Inc.
UNH,
has far more influence than Apple and Microsoft combined.
But the blue-chip gauge’s gains over the past three weeks have narrowed the gap. Before the streak began, the blue-chip was sporting a year-to-date gain of less than 2%. As of Thursday’s close, the blue-chip gauge was up 6.4% in 2023. On Wednesday, the Dow closed at its highest level since February 2022.
Of course, the Dow is still trailing the S&P 500
SPX,
and Nasdaq Composite
COMP,
in 2023 by a hefty margin, with the S&P 500 up 18.2% and the Nasdaq Composite up 34.3% through Thursday’s close.
The Dow ended up falling by 237.40 points, or 0.7%, on Thursday to close at 35,282.72.
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