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Dow 30

Index Dow 30

U.S. stocks collapsed, erasing all of Wednesday’s gains. The S&P 500, Nasdaq, and Dow 30 index have all rewritten their lows since 2020. The oldest index stopped one step away from a formal bear market. Investors are almost certain: the Fed will arrange a recession in the U.S.

Dow 30 index components: the end of the bearish rally?

The Dow Jones 30 index rally on Wednesday came to an end on Thursday, which is typical of a bearish rally. The Dow Jones Industrial Average fell 2.42%, the S&P 500 fell 3.25%, and the Nasdaq Composite fell 4.08%.

They all rewrote intraday lows from 2020 (the Nasdaq from September and the other two from December). But while the high-tech index and the S&P 500 are already firmly in a bear market, losing about 34% and 24%, respectively, from their all-time highs, the Dow is just getting close to its limit. It is now about 19% below the peak, which is not far from the 20% line after which the time for the bear market is declared.

In fact, of course, the bear market began for most indices back in January, and for the most high-tech, even in November. Their different rates of decline were due to the share of growth stocks and other securities that sold off in anticipation of a rate hike. But the sell-offs are getting wider, and the market is becoming less liquid. And the oldest index obviously won’t escape a formal bear market either, which is a step away.

Dow jones 30 industrial index: recession and stagflation

The markets are now almost certain that a recession awaits the U.S. The S&P 500 and Dow Jones 30 industrial index levels, as estimated by JPMorgan Chase & Co. strategists led by Nikolaos Panigirtzoglou, suggest an 85 percent chance of a U.S. recession amid fears of a Fed error. 

The likelihood of a complete victory over inflation before the recession hits is slim – even if the recession doesn’t start until next year. But U.S. statistics already aren’t too optimistic. The number of new buildings fell 14% in May (a 2.6% decline was expected). The Philadelphia Fed June Business Activity Index fell to -3.3 (the first negative reading since May 2020). And that’s not to mention the University of Michigan’s Consumer Sentiment Index, which last Friday fell to its lowest level in the history of surveys since the 1970s.

That said, the odds are pretty good that Jerome Powell will behave like his predecessors of half a century ago. Which means we can look forward to the stagflation of the 1970s.

What to expect from Dow 30 stock prices today? It was a very bad time for stocks. By the standards of those years, U.S. stocks are incredibly expensive now. On January 1, 1980, the P/E (price/earnings) ratio of the S&P 500, for example, was 7.39. Now it’s 18.53. 

And that’s even though during a recession and further stagflation, the profit margin of Dow 30 current prices will decrease, increasing the value of the ratio. Dow 30 stock prices right now continue to fall. So the prospects for further declines in U.S. stocks are definitely still there.

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