Key points:
- The SPDR dow Jones ETF (DIA) is down 16.3% in 2022.
- So far, the Dow has avoided falling into a bear market.
- However, how long can the Dow’s resistance last. Read on…
The SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA: DIA) is down 16.3% in 2022, making the Dow Jones index the only primary US stock index yet to enter an official bear market. As a result, many wonder how the Dow Jones has avoided falling into bear territory, yet all the other major indices are in bear territory.
Also read: The Best Impact Investing Funds & ETFs.
The Dow came close to bear territory in mid-June when the Fed hiked rates by 0.75% but did not close 20% below its January 5, 2022, all-time intra-day high, barely avoiding the bear trap that other US stock indices are currently grappling with.
One of the primary reasons why the Dow Jone is still above bear territory is the high quality of the companies included in the index, many of which have very stable revenue streams, an international presence and whose business models are not easily damaged by negative macro factors.
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Furthermore, investors should remember that the Dow is an index that represents a tiny sliver of the US stock markets since only 30 of the largest US companies are included in the index, unlike the S&P 500, which has 500 companies and the NASDAQ, which has over 3,000 stocks listed on the exchange. However, not all these stocks are part of the Nasdaq Composite index.
Therefore, as much as the Dow Jones has avoided falling into bear territory, today’s decline indicates that the index is vulnerable and could plunge into bear territory on any significant negative development such as another 75 bps rate hike by the Fed.
Traders who want to profit from significant stock market moves tend to trade the Dow since it tends to move hundreds of points on a typical day. However, it is risky to trade the Dow given the significant moves, which could easily wipe out a small trading account.
Hence, the Dow is traded mainly by professional and institutional traders. For retail traders, the Dow acts as an indicator of how the best US businesses are doing. In addition, many investors don’t want the Dow to enter a bear market since it is a ray of hope in a market dealing with multiple adverse conditions.
*This is not investment advice. Always do your due diligence before making investment decisions.
DIA stock price.
The Dow Jones was 740 points lower at writing, equal to a 2.38% decline. However, the index has fallen 16.4% in 2022.