Dow Jones Down: Should We Be Worried?

By Dale Gillham | Published 04 June 2019

The Dow Jones was down by 3 percent last week on news of Trumps proposed Mexican tariffs, which brought the total fall on the Dow Jones Index in May to 6.69 percent. So should we be worried that Trumps proposed tariffs on Mexico will adversely affect the stock market or was it a knee jerk reaction?

Obviously, some industries in the US rely on goods coming from Mexico and a tariff will increase their costs, which will be passed onto consumers with car manufacturing being one of the industries that will affected. In essence, Trumps catch cry is to make America great again and to some degree there is no gain without some pain. That said, unemployment in the US is low, consumer confidence is up and the economy is growing, so the outlook is still positive. Therefore, there shouldn’t be any concerns of an impending market crash.

For this to occur we need to see margin lending debt rising quickly as people rush into the stock market for fear of missing out. However, if margin debt tracks along at roughly the same speed as the market is growing, then the rise in debt is sustainable. Right now, the market and margin debt are rising together, so there is no reason to be concerned.

When looking to invest in the stock market, investors should focus on the top 100 stocks on the S&P 500 Index rather than the whole market as this provides greater insight into what the market is doing, given that the index is driven, on the whole, by these stocks.

Last month, both technology and processing chips manufacturers were in the red with Nvidia Corp down 25 percent despite reporting better than expected quarterly profits and revenues were above analyst estimates. Qualcom and Broadcom were also down 22.42 percent 20.97 percent respectively.

While all three stocks are competitors, they are in slightly different markets, with Nvidia into processing chips for gaming, Qualcom in mobile phones and Broadcom into semiconductors. Why is this interesting? They all are nearing good support levels and with the recent falls this could be good time to take a look as all fall into the top 100 stocks on the S&P 500 index.

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