The Dow Jones Industrial Average is among the most-watched indices investors pay attention to. Accordingly, when Dow Jones stocks drop a cumulative 2.3% in a given day, investors take notice.
There are many reasons for today’s decline. However, it’s clear that the last two sessions have been particularly brutal for investors. That’s because Friday marked the release of the highly-anticipated CPI print, which came in much hotter than expected. Yet another new four-decade high was made in May, with inflation climbing 8.6%.
This higher level of inflation has provided rocket fuel for bond yields. Over the past two sessions, Treasury yields have risen approximately 40 basis points. That’s an extremely fast acceleration, in a very short amount of time.
Additionally, today, the 2-10 Treasury Yield Curve inverted for the first time since April. Typically, this yield curve inversion signals a recession on the horizon. Yet another inversion in such a short amount of time ratchets up the likelihood of said recession in the medium-term. For Dow Jones stocks, and stocks across the board for that matter, this isn’t a good thing.
Why Dow Jones Stocks Matter for Investors
Much of the reason so much attention is paid to the Dow Jones Index is the size and quality of the companies held in this index. Meant to represent mega-cap U.S. industrial, consumer-facing companies, these Dow Jones stocks provide a pretty solid read on the health of the U.S. economy. Companies such as Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO) and Walmart (NYSE:WMT) are three examples of the kind of blue-chip stocks held in this index.
When the index is on a tear, so too is the economy (typically).
However, this recent downturn, led by strong macro headwinds, has hurt even the highest-quality stocks in the market. Valuations are coming down across the board. Indeed, it’s not only the unprofitable and speculative names that are getting hit by these rising rates. This is shaping up to be a difficult time for investors, when defensive stocks are seeing heavy selling pressure alongside the broader market.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
