Source: Barron's Chinese
Author: Joseph Adinolfi.

Analysts believe investors have ample reason to maintain a bullish stance, as the USA's economy is expected to grow at over 3% in the third quarter, and Wall Street's expectations for corporate profitability next year remain strong, with earnings growth outside of large technology companies starting to catch up.

On Tuesday (December 17), $Dow Jones Industrial Average (.DJI.US)$ the market fell for the ninth consecutive trading day, marking the longest streak of losses since 1978.

After the USA presidential election, there was a strong rally in the stock market, and this sudden reversal may surprise some investors.

The stock market seemed to hit new highs just yesterday, but the significant decrease in the number of rising stocks since early December has troubled the market, despite$S&P 500 Index (.SPX.US)$and$Nasdaq Composite Index (.IXIC.US)$Still just slightly below their respective historical closing highs.

In addition to the expanding downward trend, the Dow Jones also closed below the 50-day moving average on Tuesday, marking the first time since the November 5 USA presidential election.

So, what is putting pressure on the Dow Jones? Should investors be worried?

Market breadth has worsened.

Apart from the Dow Jones, many Other Stocks in the market have also been struggling since early December.

The broad gains in Stocks after the election have diminished, and investors have turned once again to large Technology Stocks and$Broadcom (AVGO.US)$Semiconductor Stocks.

Meanwhile, Small Cap Stocks and other value sectors (such as financial Stocks) that outperformed after Trump's victory have fallen into difficulties, with financial Stocks in the S&P 500 Index dropping 4.4% since early December, and many Other Industry Stocks, including Utilities and Energy, performing even worse.

Broadcom and the "seven giants" of Technology have contributed significantly to the rise of the S&P 500 Index and Nasdaq Composite Index this month, but even among these Stocks, some have shown weak performance:$NVIDIA (NVDA.US)$falling into the correction zone this week, raising concerns among investors about whether the AI market is losing momentum.

This imbalanced performance has a greater impact on the value-heavy Dow Jones, even though it currently includes four stocks from the 'Seven Giants.'

Brian Allen, Chief Investment Officer at CS McKee, said: 'One of the concerns with the Dow Jones is that the breadth is very poor.'

The impact of deteriorating breadth is also reflected in other indexes.

On Tuesday, the number of declining stocks in the S&P 500 Index exceeded the number of advancing stocks for the 12th consecutive trading day, according to Dow Jones Market Data, marking the longest duration since at least the end of 1999.

As a result, the proportion of components in the S&P 500 Index trading above their 50-day moving average has decreased to 40.6%, the lowest level since May.

Stock Characteristics Factors.

Most of the Dow Jones' decline over the past nine trading days can be attributed to one stock.

As of Tuesday's close, the Dow Jones has fallen a cumulative 1564 points since the beginning of the decline.$UnitedHealth (UNH.US)$Contributed about 750 points. 1564 points corresponds to a decline of about 3.5%, which is not considered a large fluctuation. Dow Jones data shows this is the worst performance for the Dow Jones Industrial Average in nine trading days since August.

In the face of attempts by the USA Congress to split the profitable Pharmaceutical Benefits Management business of the Medical Insurance companies, UnitedHealth's stocks have consistently performed poorly. Earlier in December, the murder of the CEO of the Medical Insurance division, Brian Thompson, also brought UnitedHealth into the public spotlight.

Other components in the Dow Jones that also experienced significant declines include paint retailer. $Sherwin-Williams (SHW.US)$ 、$Caterpillar (CAT.US)$and $Goldman Sachs (GS.US)$ 。

US Treasury yields are rising.

Investors are worried that the Federal Reserve may soon stop cutting interest rates, combined with expectations that inflation may have difficulty declining further at current levels, which has pushed up US Treasury yields over the past few weeks.

The rising yields have put pressure on the S&P 500 Index, which has underperformed the equal-weighted S&P 500 Index so far in December.

Mona Mahajan, a senior investment strategist at Edward Jones, said: "Only under the dual impetus of declining rates and continuing cooling of inflation can other areas in the stock market rebound."

The Federal Reserve is expected to cut rates again by 25 basis points on Wednesday, and it may also release a series of new forecasts from which investors can gain insight into the Fed's expectations for the extent of rate cuts next year.

As of Tuesday afternoon, the 10-year US Treasury yield has risen by about 20 basis points since early December, to 4.397%.

The rise in US Treasury yields has made some investors nervous, but Mahajan believes there are ample reasons for investors to maintain a bullish stance. The US economy is expected to grow at a rate exceeding 3% in the third quarter, and Wall Street's expectations for corporate earnings next year remain strong, as the earnings growth of companies outside the large technology sector begins to catch up.

Mahajan expects that value stocks, small-cap stocks, and other underperforming stocks will benefit from their relatively attractive valuations next year.

The US stock market closed lower on Tuesday, with the S&P 500 Index down 23.47 points to 6050.61 points, a decline of 0.4%. The Nasdaq Composite Index fell 64.83 points to 20109.06 points, a decrease of 0.3%. The Dow Jones dropped 267.58 points to 43449.90 points, a decline of 0.6%.

Editor/rice