The Dow Jones Industrial Average’s 10-day losing streak has been somewhat of a novelty for nostalgia junkies pining for the Jimmy Carter salad days.
Following a bruising 1,100-point collapse on Wednesday, the Wall Street benchmark has suffered the worst performance since the 39th president sat in the White House in the late 1970s.
While the Dow looks set to recover some of these losses when trading commences today, traders are looking back at the past two weeks with a sense of bemusement.
To what extent, for instance, has Nvidia Corp’s recent addition to the index caused this historic rout?
The weight of the issue
The Dow differs from the other major indexes – Nasdaq 100 and S&P 500 – in that it isn’t strictly quantitative.
In other words, addition to the 30-strong index is determined by reputational and influential factors (i.e. qualitative) alongside pure market capitalization.
It is also weighted by stock price instead of market cap- an odd choice given the often arbitrary nature of per-share stock prices.
Nonetheless, the selection process, as determined by representatives from Standard and Poors and The Wall Street Journal, is more dynamic than other strictly quantitative indexes.
This was largely the reason behind Nvidia securing a spot on the Dow over Intel, for Nvidia today is what Intel was 20 years ago.
In the space of a few short years, Nvidia has become the standard bearer of cutting-edge computing innovation.
Its high-spec graphics processing units have become the de facto pieces of hardware powering the artificial intelligence revolution, even though competitors Advanced Micro Devices Inc (NASDAQ:AMD, ETR:AMD) and Qualcomm Inc (NASDAQ:QCOM, ETR:QCI) are also beginning to make inroads.
Nvidia’s rising star is perfectly encapsulated with its history-making explosion in valuation.
Four short years ago, Nvidia was worth around $323 billion. Today, that number is closer to $3.2 trillion.
Such is Nvidia's rapid growth that it often finds itself the world’s most valuable company, ahead of Apple Inc (NASDAQ:AAPL, ETR:APC) and Microsoft Corp (NASDAQ:MSFT).
In the same space of time, Intel, once the benchmark of Silicon Valley innovation, has seen 60% of its value wiped from the market.
Intel’s problems are too multitudinous to get into. The point is, Dow companies are carefully selected as representatives of their respective industries, which is what Nvidia is today.
A case of bad timing
Nvidia’s sectoral dominance made it the obvious choice for Dow inclusion, but the timing was far from ideal.
Since 8 November, when Nvidia joined the index, the stock has dropped nearly 13%.
To an extent, Dow’s unique price weighting has buffered the index from this sharp decline.
According to Investopedia, the Nasdaq 100 is weighted more than 6% to Nvidia, while the Dow is weighted just 1.8% to Nvidia, according to Slickcharts.
While Nvidia has undoubtedly weighed on the Dow, UnitedHealth Group Inc (NYSE:UNH, ETR:UNH) has caused a far bigger headache for the index.
UnitedHealth, whose chief executive Brian Thompson was recently gunned down in broad New York daylight by vigilante Luigi Mangione, is currently down more than 18% since that fateful day of 4 December.
UnitedHealth has the second-highest weighting on the Dow; clearly this has had a significant impact. An even bigger one than Nvidia, no doubt.
Thus, the onus rests on UnitedHealth to lead Dow’s recovery. An expected 0.75% bump when treading kicks off today is a start, but it will take more than that to recover lost ground.