By Daily Mail (U.S.) | Created at 2025-03-15 03:00:08 | Updated at 2025-03-15 09:45:46
7 hours ago
In what is growing moment of unease on Wall Street, a century-old stock market indicator - the legendary Dow Theory - is warning that the worst may not be over for US investors.
There were some steep losses over the past week as investors were rattled by Donald Trump's tariff-related headlines.
Although stocks rallied Friday clawing back some of the loss, the Dow still recorded its worst week since 2023.
Amid the economic uncertainty and political headwinds, the Dow Theory - long trusted by traders to forecast the broader market's next move - is suggesting investors brace for more losses.
At its core, the Dow Theory holds that for any market trend to be valid and sustainable, both the Dow Jones Industrial Average (DJIA) - the 30 iconic companies representing American industry - and the Dow Jones Transportation Average (DJTA) - the 20-company index of airlines, railroads, and shippers — must move in the same direction.
In simple terms, if industry is booming but the companies that move goods around the country are struggling, something is seriously wrong beneath the surface.
At its core, the Dow Theory holds that for any market trend to be valid and sustainable, both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) - the 20-company index of airlines, railroads, and shippers — must move in the same direction
There were some steep losses over the past week as investors were rattled by Donald Trump's tariff-related headlines
Although stocks rallied Friday clawing back some of the loss, the Dow recorded its worst week since 2023
Right now, both indexes are falling sharply.
As of Friday's close, the Dow Jones Transportation Average has plunged 17.5% from its November peak, teetering on the edge of bear market territory.
The Dow Jones Industrial Average has tumbled 7.8% from its December high, deepening fears of a broad market correction.
For veteran market watchers, this double-barreled decline is a loud and clear warning that the US economy may be sliding into real trouble, despite political reassurances from Trump that everything is under control.
Indeed, earlier this week President Trump triggered concerns of a recession when he declined to rule out the possibility of one.
'There is a period of transition, because what we're doing is very big,' he said on Fox News adding to fears that a slowdown may already be underway.
But transportation stocks are the canary in the coal mine of the economy.
If companies that move goods, people, and packages are struggling, it's a sign that demand is falling - and an indicator that consumers and businesses are pulling back.
The Dow Jones Industrial Average has tumbled 7.8% from its December high, deepening fears of a broad market correction. The chart above shows year-to-date which is a 2.1% fall
As of Friday's close, the Dow Jones Transportation Average has plunged 17.5% from its November peak, teetering on the edge of bear market territory
Delta Air Lines slashed its profit forecast in half, citing weak demand and rising costs.
American Airlines warned that its first-quarter loss would be twice as large as it previously expected.
Retailers like Dick’s Sporting Goods and Kohl’s offered disappointing sales outlooks, hinting that the average American is cutting back.
'As a risk barometer check, that's not a great backdrop for the overall market,' said Todd Sohn, managing director of ETF and technical strategy, at Strategas Securities.
Similarly, Adam Turnquist, chief technical strategist at LPL Financial, believes the market is sending a powerful sell signal.
'To make matters worse, its Dow Theory cousin - the Dow Jones Industrial Average - has also rolled over and violated the pullback lows from January, checking the box for a sell signal as the averages confirm the primary trend of the market is no longer higher,' he said to Bloomberg.
There is a sense of irony that in a world of flashy algorithms and AI-powered trading, a 100-year-old indicator is the one sounding the alarm.
Critics argue that the Dow Theory is outdated, pointing out that today's economy is dominated by tech and services, not railroads and factories noting how the days when transportation stocks could predict the market are long gone.
From the archive! The Daily Mail's Wall Street crash newspaper headline from October 25 1929
There is a sense of irony that in a world of flashy algorithms and AI-powered trading, a 100-year-old indicator is the one sounding the alarm. Pictured, crowds gathering in Wall Street, New York, at the onset of 1929 Wall Street Crash
But recent market behavior suggests otherwise.
Despite the high-tech nature of today's economy, goods still need to be moved, and the transportation sector remains a vital window into consumer and business demand.
And with transportation stocks on pace for their worst weekly drop since September 2022, even the skeptics are taking notice.
With both Dow averages signaling distress, analysts and investors are now bracing for more pain.
The stock market, which had already been hammered by tariff concerns, political uncertainty, and signs of slowing growth, may now be facing the prospect of a deepening correction - or even a bear market.
For everyday investors, this could mean tougher days ahead, as stock prices sink and volatility rises.
Yet, amid the gloom, some see opportunity. If the Dow Theory's warnings come to pass, there could be a chance to buy high-quality stocks at bargain prices.
