The Dow Jones Industrial Average just did something it hasn’t done since Elton John’s “Goodbye Yellow Brick Road” was the year’s bestselling album and bell-bottom jeans were trending—it dropped for 10 straight trading days. The streak, coming before expected and momentous changes from a new U.S. administration taking office in the coming year, sparked alarm among many investors.
However, while the Dow tumbled 6%, the broader S&P 500 fell only half as much, which is a critical reminder: understanding the signals from different market indicators can be the key to navigating volatility and strengthening your investment strategy for 2025.
Key Takeaways
- Market indicators tell different stories: The Dow’s structure as a price-weighted index of just 30 stocks means it’s disproportionately affected by individual companies.
- Historic streaks rarely predict future returns: Long losing streaks have historically been poor predictors of future market performance.
- Sector-specific events (like the healthcare turmoil) can create temporary disruptions that don’t reflect broader market health.
What the Dow’s December Doldrums Can Teach You
When the Dow drops for 10 straight days, it’s tempting to see it as a signal to run for the hills. But the real lessons are less dramatic:
1. Despite where the media puts its attention, monetary policy is key: No matter how much of the media space is still taken up by potential changes from the coming U.S. administration, the U.S. Federal Reserve still runs the show.
While the Dow’s decline started with the targeted killing of UnitedHealthcare Group Inc.’s (UNH) CEO on Dec. 4, 2024—sparking renewed scrutiny over widespread practices in the healthcare sector—it was the Fed’s “hawkish cut,” lowering rates while warning about inflationary pressures from potential tariffs in the coming Trump administration, that triggered the deepest single-day plunge.
When Fed Chair Jerome Powell indicated only two rate cuts might be in the offing in 2025 instead of the expected four, it showed how sensitive markets remain to interest rate expectations.
2. How the indexes are structured matters: The Dow’s dramatic slide partly reflects its unique design as a price-weighted index of just 30 companies. When UnitedHealth, its highest-priced stock, tumbled after its CEO’s murder, it dragged the entire index down with it. Meanwhile, the broader S&P 500, which weights companies by their actual market size, weathered the storm much better, falling by only about half as much.
3. Market sentiment can shift rapidly: Just weeks before, investors were celebrating potential rate cuts and strong holiday spending. This reminds us that trying to time market moves based on headlines or short-term trends often leads to bad investing decisions.
How To React to Market Turmoil
Let’s face it, though: sometimes, market worries aren’t just noise. The question isn’t whether volatility will happen—it’s how to handle it when it does.
This is where market composure comes in, argues Yvan Byeajee, author of the recent Trading Composure: Mastering Your Mind for Trading Success. “It’s everything,” he says. “It helps you stay focused on the long-term process rather than getting caught up in the emotional highs and lows of daily market fluctuations.”
Putting this composure into practice starts with understanding what you actually own. For example, if you’re invested in broad market index funds or a diversified portfolio, you likely have far less exposure to any company’s troubles than the Dow’s dramatic slide suggests.
“When you have composure,” Byeajee says, “you can weather volatility with strategic stability, avoid chasing what’s hot in the moment without a plan, and prevent blind emotional reactivity to short-term losses or gains.”
Here’s What You Can Do
Market history shows that trying to dodge volatility by moving to cash often backfires—you have to be right twice, both when you exit and when you reenter. However, you can use market stress as a prompt to assess your risk tolerance in line with the following:
- Whether your investment mix truly matches your comfort level
- If you have enough cash set aside for near-term needs
- How your current investments align with your long-term goals
- Whether you’re overconcentrated in any single stock or sector
Consider automating your investment contributions, such as through dollar cost averaging. This removes emotion from the equation and can help you take advantage of market dips without having to actively decide when to invest.
The Bottom Line
While the Dow’s historic losing streak might seem alarming, it’s actually given investors a master class in market mechanics. From understanding how different market indexes work to seeing how Fed policy and sector-specific events can create market-wide ripples, these lessons are valuable for any investor. As we head into 2025, those most likely to fare best will maintain perspective and stick to their long-term financial plans. “In the long run,” Byeajee says, “composure helps you maintain consistency, which is key.”
